All eyes remain on oil, this morning.  With the EIA inventory report coming out, we shouldn’t have to wait long for the final capitulation.

Futures are getting a jump start, as ES has rallied 10 points — back to even – on a sudden spike in USDJPY back to channel resistance.SPX got within 2 points of our downside target yesterday.  Will it be able to hold?

As long as CL reverses at our next downside target — the purple channel bottom at 42ish — SPX should be able to hold 2430 for now.

If not, look out below.

continued for members…

Though, if the white channel doesn’t hold, there is another one (shown in purple below) that would work just as well.  The only problem is it offers multiple downside targets, so things could get messy.ES is back above its SMA10.

VIX has enough space on the upside to effect at least a small drop before running into the yellow channel bottom.  If a larger backtest is desired, it would even run up to 11.7 without upsetting things too much.But, I would expect SPX’s yellow channel top to bend but not break.  It would be worth starting out short just in case 2434 doesn’t hold.  But, keep those stops tight just in case.

UPDATE:  9:32 AM

A good entry point…But, sheesh, look at VIX — pretty unbelievable.UPDATE:  10:32 AM

The report was mildly positive, and CL got a little bounce up to the neckline, pushing SPX slightly higher.  We’ll see if it sticks.  This would be a whole lot cleaner if they would just let SPX tag at least the SMA10 and CL the channel bottom! VIX isn’t waiting around.  It’s sliding, which is helping to prop up SPX.  Watch for it to toggle around the SMA10, depending on what signal is desired.The EIA report…at -2.5MM barrels, not quite as positive as the API at -2.72.  Gasoline showed a 600K draw versus API’s 346K build.

UPDATE:  11:12 AM

Better late than never, I suppose.  We’ll call this the channel and SMA10 tag.  Decent possibility that SPX will bounce, though CL still has downside potential to 42.11 — meaning SPX isn’t done yet.  At the very least, tighten up stops here. My preferred target is 2430 at 11:40ish.  But, if CL takes its time, inching lower and lower until 42.11, it could spook SPX into a bigger drop.  The best bet would have been a 3-second spike lower and recovery like we see in VIX all the time.  Oh, well…I don’t know how SPX will be when CL turns, but that’s where I’d want to cover.  Ideally, it’ll be at CL 42.11.  My guess is that translates into SPX 2430 with some aggressive, offsetting VIX smashing, maybe even a USDJPY bounce.

UPDATE:  11:42 AM

SPX is pushing back above the white channel bottom and backtesting the SMA10.  I’d cover on any move back through the SMA10, but I’d want to be short below it. UPDATE:  11:49 AM

VIX just tumbled to the red channel bottom, sending SPX back above its SMA10.  This should give CL plenty of room to drop to 42.11 if it’s going to without creating a problem for stocks — especially if VIX drops in the process.

As I mentioned before, I’m going to take off now.  I think things are pretty well set up for the remainder of the day.  I’d look to go long on CL when it bottoms out, should be a nice trade.  Just know that it’s a funky place Fib-wise, so the turn might be messy.  Use stops and good common sense.  And, watch USDJPY and VIX for corroborating signals.

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BTW, I’m going to post until about 11am this morning, then take off the rest of the day.  I’ve contracted whatever my daughter has, and am pretty under the weather.