The Nikkei 225 offers great perspective on today’s selloff.  One of the most heavily manipulated indices on the planet (the BoJ buys stocks outright), it was knee deep in a steeply falling channel from its January highs until Apr 30, when it tagged the top of the channel and the .618 Fib level.  It was a high probability reversal point.As usually happens, though, the yen carry trade kicked into high gear.  The USDJPY spiked through its SMA200, carrying NKD up and out of the falling channel.  A backtest two weeks later turned into a close call, with NKD closing back inside the channel for a few days — not exactly a clean backtest.

But, after a strong USDJPY bounce, NKD was on its way again.  The critical day was Jun 12, when it failed to make a new high.  This failure spoke volumes, as it was in keeping with our expectation that, just like many major indices, it was simply marking time until its SMA200 emerged from the very bearish falling channel established earlier in the year.

It’s a hallmark of the current bull market — slice through resistance when possible, then defend those levels like there’s no tomorrow.  With ES currently off 32 points, SPX and DJIA are in position to attempt the same maneuver – a day earlier than we had expected.

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VIX has arrived at the top of the rising white channel a little ahead of schedule.  If the channel holds, we’ll get a garden variety backtest.  If it doesn’t, then the SMA200 targets are back on the table.  Note that we’re talking whether ES’ 2.24 and white channel bottom will hold up.  It’s no coincidence.

It’s at 2728.79 – 20 points below current levels for ES, which is already off 32.SPX is in a somewhat differnt position.  Its 2.24 at 2703.62 is about 70 points below yesterday’s close.  It offers the additional advantage, however, of representing a backtest of the falling white channel.  The key will be whether SPX’s red channel bottom at 2750ish can hold.The Dow is pretty clear cut, with the SMA100 at 24745 and the wedge bottom around 24600 as the lines in the sand.The headlines keep getting worse for CL and RB — offering them even more reason to reach some new lows.  The risk has risen, though, since CL and RB are frequently used to prop up stocks — which will probably need some help today.

Significantly, USDJPY is back below its SMA200 and trying to make a comeback.  This was doubtless not in the BoJ’s playbook.And, EURUSD is threatening – again – to break down.  The upshot – a breakout for DXY.Bonds are reacting, but not near as much as one would expect.UPDATE: 3:30 PM

So far, VIX’s fade and USDJPY’s rally have been enough to produce a 50% retracement.RB and CL remain uncommitted, with a few days of leeway left in the month. Stocks are a crap shoot, but I believe we could see further downside now that the SMA200s are drawing near.