A month ago [see: Crossroads Ahead ] we targeted the 1.618 at 2335 as an attractive target for a pullback.  The only hitch was that SPX then broke out of the rising white channel it was in, making the backtest a little tricky.  

In this case, patience paid off, as SPX is positioned to backtest the (repositioned) channel and the 1.618 in one fell swoop this morning.

The decline has been forced on an otherwise exuberant (thanks to the algos) market by oil’s timely decline and a (coming) plunge in USDJPY.  Will the backtest hold, or is something nastier in store?

continued for members…

Look for USDJPY to continue its sell off, potentially all the way to the SMA200 — but, at least as much as is needed to get SPX to 2335.

CL has retraced .886 of its bounce from earlier this month, but I’m still looking for it to reach our next downside target at 45.36.  Note that the API report yesterday was bearish, and we have an EIA inventory report coming out this morning at 10:30.

UPDATE:  9:40 AM

SPX is losing ground on continued USDJPY and CL weakness.  We should get a chance to play along to 2335 and, depending on USDJPY and CL, possibly lower.  A tag at 2335 would be nice and neat, but we have the red 1.618 just below at 2332.62 and the SMA50 at 2326.50.  In other words, be prepared for a less than perfect splashdown.

Note that the MBA Mortgage Index was a miss at -2.7% versus the prior +3.1%.  Existing Home Sales, due out at 10:00AM, could serve as another good catalyst for a downside move if it also misses.

DX has been settling lower ever since New Year’s, making a nice A-B-C corrective wave that, if C=A, would take it below the neckline of a H&S Pattern, a TL that has been in place since last May, and the SMA200.

This kind of a move would certainly leave a mark on SPX and might well facilitate USDJPY’s drop to 108.  A drop from the .618 Fib to the .500 at 95.859 definitely would.  Could a very weak housing report do the trick?  Possibly so.

It seems to me that VIX might finally be able to reach its SMA200 this morning.

UPDATE:  10:33 AM

SPX just came within a point of our 2335.34 target after EIA reported a 5.0 million barrel build.  While there might be more downside, this is probably close enough.  There should be a chance to re-short if it drops any further.

I’d cover here, but be prepared to switch back to short if, say, CL’s bounce (yes, it’s up on the news of bigger inventories – what else is new?) fails, VIX gets a bounce on its SMA5 200 at 12.27, or USDJPY continues selling off.

UPDATE:  10:43 AM

VIX has reached the SMA5 200 and CL is reversing at the tangle of SMAs at 47.65.  I’d try reverting to short here at 2343.10 with very tight stops.  The premise is that the bounce was premature rather than close enough (for the big bounce.)  

So, CL and VIX and, to some extent, USDJPY would have to be in agreement for the premise to pan out.  If VIX plunges below the SMA5 200, for instance, the bottom is likely “in” and SPX won’t go lower.

UPDATE:  11:15 AM

SPX is getting caught up by its SMA5 10, and VIX just dipped below the SMA5 200 as USDJPY and CL both popped above short-term SMAs.  I’d cover here, with the understanding we can always re-short if this move fails.  If SPX shoots up past the SMA5 50, then there’s a good chance it’ll reach the SMA5 100 around 2352.

UPDATE:  11:46 AM

SPX is coming up on its falling SMA5 100.  I’ll watch for a reversal here, which if it’s to occur should be accompanied by a reversal by CL at its SMA5 200 and by VIX at current prices (no particular support here.)  I’d reshort on a drop through the SMA5 10, preferably after tagging the SMA5 100 itself.  If CL pops through 48, all bets are likely off for the time being.

I’m taking a quick break, will be back in 10 minutes.

UPDATE:  11:59 AM

SPX is slipping below its SMA5 10, but hasn’t yet tagged the SMA5 100.  I might be a bit premature, but I’d try re-shorting here as CL has not poked above its SMA5 200, and USDJPY just dropped through its SMA5 10.  Obviously, this is pretty thin evidence of a reversal — maybe 50:50.  I’d be cautious with this position.

UPDATE:  1:37 PM

I’d dump the short if SPX pushes up through the SMA5 100.  Note that CL is making a move, and VIX already backed off it’s breakout attempt.  USDJPY is still potentially bearish, but gave up on its earlier dip.  We need it to make a move soon if SPX is going to have a shot at 2335 or lower today.  DX clearly has further to fall — just don’t know if it’ll happen during market hours.

UPDATE:  2:14 PM

Bit of a broken record here, but let the SMA5 100 be your guide on our short position.  Note the potential IH&S Pattern setting up.  It completes at 2349.50, but I’d be long at 2346.50ish.  And, of course, it’s hard not to notice the approaching SMA5 200 — now at 2358.83.  Rarely does SPX ignore it if it’s the only untagged SMA on the short-term chart while SPX is trying to make a bottom.

This pattern looks like many other days we’ve seen where the potential for a drop is perfectly obvious, but it’s drawn out until the end of the day or dispatched entirely by an overnight ramp job.  For all the effort going into propping SPX up, there has been zilch expended on helping it break out.  So, I remain nervously short.

Thinking ahead a little bit…if SPX spurts through the SMA5 100, I’d look to be long until the SMA5 200.  A C=A corrective wave would get SPX to 2355.27 and, from the looks of things, that’s about where SPX’s SMA5 200 would be at the close.  We’ll see.

UPDATE:  2:32 PM

I think this is where it takes off for 2355.  I’d revert to long here, but be ready to go short on any drop through the white TL — or sooner, if the right signals come along.  Right now, I’m looking at VIX about to reverse, CL getting support, ES getting support, and USDJPY back above its SMA5 10.  And, given that we usually get rallies into the 3:00 hour, I think this bounce will “take.”  FWIW, the IH&S targets 2365, not 2355.

UPDATE:  2:48 PM

SPX is backtesting the SMA5 100 as CL is hinting at a breakdown and VIX is leveling off.  Keep a close eye on them, and keep your stops where you’re comfortable.  Any drop back through the purple TL should prompt shorting.

UPDATE:  3:33 PM

Getting some weakness here, as CL is breaking down a bit and VIX is edging higher.  I’d revert to short on any drop through the red neckline, currently around 2349.  But, I’d be right back to long if it reverses higher.

UPDATE:  3:49 PM

Last second ramp here fueled by USDJPY breaking out and VIX sitting just below its SMA5 200.  Back to long into the close with stops right here, and to cash for the night.  We’ll try again tomorrow to tag 2335.  My gut tells me it’ll happen, but only hold short if you can hedge or handle the risk of a ramp job.

UPDATE:  3:58 PM

Same thing as the rest of the day — lots of propping to prevent a drop, but no follow through to the upside.  This is nominally bearish and should result in a drop into the close or tomorrow.  Back to short for anyone intending to hold overnight…

 

 

 

 

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