CL finally reached our downside target range yesterday [see: Oil Makes Its Move.]  The drop had been postponed for over two weeks, but is just as meaningful.  How it responds from here will drive equity prices through at least next week’s FOMC meeting.

continued for members…

Recall that this was the long-awaited tag on the rising white channel from February.

A bounce here means that SPX will have a catalyst for a rebound — but, probably after making a lower low as discussed yesterday.

My thesis remains that a big bounce will enable the FOMC to make a reputation salvaging rate hike.  While, a failure to bounce means they’ll take no action.

DX and USDJPY remain elevated, but won’t need to do so if CL bounces sharply.  USDJPY’s chart is pretty busy… … but the big picture is pretty clear.

The FOMC’s action will ultimately drive DX’s. But, for now, it’s clinging to that resistance zone.

UPDATE:  9:36 AM

Shorting here for another leg down.  It should be short and sweet, and we’ll know it’s complete, when CL spikes higher and VIX lower.  I don’t have an actual target, just lower than 2119.12 — maybe by only pennies.  FWIW, ES can accommodate the drop without making new lows of its own — as it hit its new low after yesterday’s close.

UPDATE:  10:05 AM

I thought it would gather momentum after the 10AM hour, but USDJPY is being rather stubborn.  I’m cutting it loose here, as it seems intent on tagging the SMA5 200.  If things reverse, I’d gladly re-short it on the way back down.

UPDATE:  10:18 AM

Taking another shot at shorting here.  If it doesn’t reverse, the upside potential is up to 2147.  So, tight stops are warranted.  If it’s going to happen, USDJPY should reverse sharply, and VIX should spike higher, at least to the white TL.

If it does reverse here, it’s arguably a safer way to do it.  We often see a reversal after a TL breakout, so they can frame it as a backtest of the breakout.  If this is the case, now, the drop to 2119 could take a couple of hours rather than the quick reversal we anticipated.

UPDATE:  10:51 AM

Well, USDJPY is cooperating, but CL is popping and VIX is tumbling.  Stopped out on the short position, and will revert to cash.  This puts SPX back above 2134.72 — the 2015 high.  I should point out that VIX is approaching its SMA200 — the touchstone around which it danced yesterday to great effect.  If it plunges below it, USDJPY’s drop won’t matter much.

UPDATE:  11:08 AM

Last chance for a reversal, as ES has retraced .886 of yesterday’s drop and SPX has reached the last restraining TL.  Back to short with very tight stops.  If this doesn’t work out, I’ll call it a day and surrender to the forces of OPEX.  

I don’t know whether or not we’ll get new lows, today.  But, I am stinking up the joint.  The odds of 2119 are getting more remote by the minute.  Note we’re also heading into the euro close, and VIX is down below the SMA200.  So, the odds are very much against a short at this point.

UPDATE:  11:25 AM

Bailing on the short here.  I’m going to take a step back and reassess.  In the meantime, I’d play along on the long side with stops right here in case this is a euro close head fake.  We’ll know in a few minutes.

UPDATE:  11:36 AM

This could reverse here at the white channel midline.  I’d try shorting, but know that the odds are against it and watch for a pick up on the approaching SMA5 10.

UPDATE:  12:00 PM

Here’s the chart that got me thinking about the downside again.  Note that ES bounced to the purple .618 after having bounced to the red .618.

An update on SPX makes me think we’ll only get to a backtest of the broken purple channel at the SMA5 20.

FWIW, USDJPY is backing off pretty steadily.And, VIX is pretty close to a potential reversal point — the white channel midline.

But, CL, which appears likely to push to higher highs, seems to be calling the shots this morning (along with VIX.)  Maybe someone had a lower in low in mind earlier, but those efforts were obviously trumped by whoever is ramping CL and smacking down VIX.

UPDATE:  12:45 PM

This would be the obvious place for SPX to reverse and head higher if it’s going to.

VIX has almost backtested the SMA200.  Will it reverse or pop through?

UPDATE:  12:59 PM

Not getting the warm and fuzzies here.  As logical as a new low might be, it seems they’re going to protect this uptrend.  I’d cover the short and revert to long here.  Though I’d be quick to re-short if it reverses and the red channel starts to break down.

UPDATE:  1:09 PM

CL has rolled over, which has me thinking we might get more downside yet.  Back to short with tight stops.  I’m still not confident at all, and won’t be until SPX drops through 2134.  Odds are this is another head fake designed to suck in poop-nosed cotton-headed ninny muggins like me.

UPDATE:  1:32 PM

Not happening.  I’d cover the short here, as VIX is rolling over and SPX is catching support at the SMA5 10.  This, in spite of USDJPY moving lower and CL moving lower.  If it pushes through the white midline, the next resistance isn’t until 2146-2150.

UPDATE:  1:41 PM

USDJPY, in particular is almost in free fall.  Either someone seriously wants SPX to go lower, or they’re simply taking advantage of a bulletproof SPX in order to reset USDJPY.

UPDATE:  2:19 PM

SPX just reached 2150 and should reverse here, except for the fact that VIX is being pummeled through the white channel midline.  Looks like we’re going higher still, with the next resistance levels being 2156, and then 2166.

UPDATE:  2:44 PM

SPX is trying to backtest the white midline and SMA5 10.  CL is settling lower, which isn’t helping much, but it’s stuck on the SMA5 200.  And, SPX is angling higher, while VIX is backtesting a falling TL.  SPX is halfway to its upside target, so a little backtest here wouldn’t necessarily  damage the uptrend.

UPDATE:  3:17 PM

SPX is breaking down a bit as VIX pushes back through the white midline.  I’d take profits here and see where support comes in — mostly likely at the rising white midline at 2144.50ish.  The SMA5 50 runs through it.  But, if it doesn’t hold, there’s exposure down to 2135.

UPDATE:  3:42 PM

Even though the red channel broke down, it appears as though VIX is going to push SPX higher.  Back to long into the close, where – if it rejoins the rising red channel – the next decision will be whether to hold overnight.

UPDATE:  3:47 PM

SPX isn’t rejoining the red channel, but backtesting instead. Back to cash here.

A big part of the resistance is ED’s midline.  It might present a problem going forward.  But, at this rate, they’ll ramp over it overnight.  For swing traders who can handle the possibility of a gap down overnight, I’d hold long.

EOD:

The bullish case is represented best by ES.  Today’s rising red channel, if expanded to include yesterday’s high, reaches 2170 (about SPX 2180) by late Monday and 2179 (2189) by Tuesday.  It works with the rising white channel and the falling white channel and the white .786 and .886.

The bearish case is, well, lower.  But, TPTB seem to be quite alright without a lower low.  And, the odds of one setting up on OPEX tomorrow are pretty slim.  My gut tells me we’ll have another day like today tomorrow.