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SPX reached our second downside target yesterday after the rising channel from Tuesday broke down at 1960.  It was clearly headed for 2138 when DB intervened.

This is not a gimme, and is complicated by the fact the we have lots of potential support between here and there: e.g. the white .786 and .886 at 2148.20 and 2145.09.

It got a reversal and 15-pt bounce on Deutsche Bank’s recovery back above 11.45, confirming DB’s role as a new leading indicator for stock prices.

Futures fell another 8 points after the close, only to recover 16 points as DB, CL and USDJPY all bounced after hours.  What real live investors took away, overnight, low-volume ramp jobs have once again restored.  Is this a great “market” or what?

USDJPY, for example, dropped to our red TL, but not until after the close (and rallying 80 pips into the Japan open.)

This morning, ES is up 5 points, leaving SPX in limbo.

continued for members…

It should have enough support to reach the red channel midline (red dot at 2165ish) but rising above it will require that DB extend its recovery beyond the red TL on the chart above.  And, I’ve seen nothing in the news this morning to indicate that it will or should.

What’s more, DB’s SMA10 is just above at 12.35.  The stock hasn’t been above this reliable short-term momentum indicator since Sep 13.

So, while DB will certainly provide a bump on the open, we’ll need other tools to maintain those prices throughout the session and into the close for a weekend that will certainly entail some serious headline risk.

USDJPY still has plenty of headroom……as does CL.  While it’s risen 11.3% since our bottom call earlier this month, it’s effect has been to mitigate DB rather than drive stocks to new highs.  Needless to say, this creates an incredible amount of tension and, as mentioned above, focuses all of the attention on DB and the potential fallout.

And, VIX’s rising red channel isn’t long for this world.

UPDATE:  10:00 AM

I can only imagine how many central bank dollars, euros, Swiss francs and yen are being pumped into DB stock at this point.  It has pushed above the red TL, where the SMA5 10 is about to catch up.

Will it be enough to rise above the SMA10 at 12.35?  I doubt it — not without actual news.  But, since this is the month- and quarter-end, and stocks are green for the moment, I think they’d be satisfied to keep it between 12.1 and 12.35 for the next 6 hours.

SPX only reached 2164.55 on the open, but I suspect it’ll keep chipping away, and between USDJPY, CL and VIX, it’ll eventually reach the red midline.

If DB breaks above its SMA10, then there’s greater upside potential on the day.  But, it will likely be muted unless accompanied by actual news instead of plain ol’ spoofing.

UPDATE:  10:14 AM

I’ve redrawn the rising red channel to reflect yesterday’s low, and it raises our upside target just a bit to 2168.27 — the intersection of the red midline and the SMA50.  I’ve slid the 2175.61 target over to later today.  Though, again, it’s not likely without DB breaking out.

Speaking of DB, yesterday’s low was actually a better fit with the long-term channel than Tuesday’s.  In adjusting the Fibs to yesterday’s low, we get a revised initial upside target of 12.65.  But, of course, this is highly subject to the news out of Frankfurt and Brussels.

At this time, DB has tested and been rejected at the SMA10.  But, where there’s a printing press, there’s a way…

I think they’ll make a concerted effort to top 2172.62.  SPX has been in this falling white channel since Aug 2.  It’s almost to the point where even its midline means a backtest of 2134.  And, failure to top 2172 means there’s a good chance of the little H&S Pattern, shown below in red, playing out.  It targets 2006, well below the important support at 2134.

Again, given the DB situation, anything could happen.  But, it’s clear what their objective is.

UPDATE:  11:07 AM

ES has run into some channel resistance here, so SPX could be stymied.  But, DB decided to push through 12.35 at exactly the same time that ES reached that channel top.  Amazing coincidence…  SPX should push through the channel midline and now has a good chance of reaching 2175.61.

UPDATE:  11:15 AM

Gotta love it…

But, how will they ever get SPX to break out of the white channel?  Don’t look now, but DX is back at support, CL is about to make a higher high, and VIX… VIX has no shame.

UPDATE:  11:30 AM

Euro close and everything is just peachy.  DB is up to 13.21, nearing the .500 Fib and red channel midline at 13.45.  VIX is about to break down again.  CL is still coiling, ready to break yesterday’s 48.32 if need be.  In short, ES should be able to break through its SMA50 at 2163.75 and SPX should be able to break out of the white channel and tag 2175.61.

Besides making me look good, it’s an important target from an upside standpoint.  It represents the neckline of the big IH&S set up over the past couple of months.

Here it is on a bigger scale, targeting 2237 — conveniently near the white 1.618.

This all presupposes, of course, that DB doesn’t implode and take the financial system down in the next six weeks.  Some of our biggest downturns have occurred when a beautifully constructed IH&S came within 5-10 points of completing…then, never did.  I’m thinking especially of the Jul 2011 correction.  If you’ve joined in the past year or so, take a minute and read Ten Lousy Points.  Many, many similarities.

If SPX can’t hold the SMA50 and red midline here at 2168, all bets are off.  I’d sell, revert to cash for the weekend, and get ready for some fireworks.  Remember, 12:09 PM is often a turning point for downturns to begin.  It’s also the time at which SPX’s SMA5 20 should arrive at 2168.27.

UPDATE:  2:08 PM

SPX is just bouncing back and forth.  I wouldn’t be surprised to see it dip again when the SMA5 50 in purple arrives on the scene and tops 2168.27.  I suspect it’ll close somewhere between 2168.27 or 2175.40, but am not crazy about the idea of staring at it for another 2 hours to capture 3-4 points. But, I wouldn’t discourage any one from trying it if they like.  It pretty much has to top 2172.67 in order to make a higher high and negate yesterday’s bearish escapades.  Just use reasonable stops.  I’m going to duck out and work on some other charts and will follow up at the end of the day.