Yesterday morning started out promising for bears.  But, the downdraft in CL that allowed a 13-pt decline in SPX was quickly erased.  From then on, SPX had a great deal of difficulty reaching even obvious levels of support.  Instead, we saw yet another insufferable meltup.

CL took the opportunity to gap higher overnight.  So, what does it mean that futures are off 7 points?

continued for members…

I suspect the whole point is to allow the SMA5 200 tag that should have happened multiple times yesterday.  Now that it’s out from under the falling white channel, it can be viewed as a backtest — a positive.

If so, look for USDJPY to reverse at the .500 or .786 shown below.

And, look for VIX to reverse at the falling white channel top again.

If SPX extends beyond the backtest, then our 2330-2333 target is alive and well.  As always, keep an eye on VIX (and, that channel top) and CL — that rising purple TL, in particular; for now, it appears we’re supposed to ignore yesterday’s momentary stumble.

UPDATE:  9:35 AM

They’re putting on the brakes here to force a higher low. Another inexplicable spike for CL and a plunge for VIX.  Back to long for the moment as we see how big a bounce it’ll be.  Ideally, it’ll run out of steam at a backtest of the SMA5 200, but VIX could drop through the red channel support and ruin the bears’ fun.  I’d want to go right back to short if it can’t make it past the SMA5 200, or at least if it drops back through 2340.

ES has potential channel support here, though it doesn’t look all that convincing to me.

UPDATE:  9:51 AM

Here’s the SMA5 10 –a good turning point if it’s going to.  But, I suspect they’ll try to hold it at the SMA5 200 — now support.  Keep an eye on VIX, which is sitting just below channel support in order to make sure.  If VIX bounces here, and SPX can drop through 2341.98, then this exercise was about putting the brakes on the initial decline and we should get another leg down.  But, at this point, it appears TPTB will try to hold the line.  Yesterday’s reversal at the .618 suggests the white .786 (2348.65) or .886 (2349.89) as upside targets.  

UPDATE:  10:03 AM

There it is, VIX’s shot across the bow — a sudden break down below support just to remind everyone (ok, the algos really) of what could happen if they don’t abandon their bearish ways.

The tricky thing, as I see it, is the rising white channel slices through the .786 and ..886 at 10:30 and 11.25 respectively.  If SPX should melt up and tag those levels for another backtest, will it reverse?  Continue melting up on the underside of the channel (which reaches 2356 at the end of the session)?  Pop back into the channel and break to another all-time high?

Typically, when there’s downside pressure on stocks, OPEX days have seen prices hold the line but not necessarily push to new highs.  These aren’t exactly typical times, lately.  But there is plenty of selling pressure, IMO — just not enough to overcome the CL, VIX and USDJPY-driven algos.

I looked at OPEX goings-on years ago in Does OPEX Matter?   I need to update the results, but here’s what I found back then.

I studied the last 42 OPEX cycles since 11/16/07, dividing them into positive (21), negative (13) and neutral (8) cycles based solely on net price movement during the cycle.  I then compared performance on the day of option expiration with the day after expiration for each cycle.  The results are intriguing.

• When the OPEX cycle was up, OPEX day was positive 62% of the time.  When the cycle was negative, OPEX day was also positive 69% of the time.  Neutral cycles were even.

• In positive OPEX cycles, OPEX was usually followed by a reversal — regardless of whether OPEX day was positive or negative.  Negative OPEX days produced positive reversals 100% of the time; positive OPEX days produced negative reversals 62% of the time.

• In negative OPEX cycles, negative OPEX days were always followed by another negative day (100%), while positive OPEX days usually produced negative reversals (67%).

• When the cycle was neutral, the day after OPEX reversed 75% of the time, regardless of whether OPEX was up or down.

• In general, negative OPEX days were followed by positive days (69%), unless in the midst of a negative OPEX cycle.  And, positive OPEX days were followed by negative days (69%).

I also looked at the size of the day to day moves.   In general, most negative OPEX days produced similarly-sized positive reversals — regardless of the cycle trend.  But, positive days in positive OPEX cycles produced outsized (2.14X) reversals, as did positive days in neutral OPEX cycles 1.63X).

Since we’re in a positive OPEX cycle, a positive OPEX day today is more likely than not to be followed by a reversal lower.  A negative OPEX day is more likely than not to be followed by a continuation of the uptrend.

In summary, today is likely to be a head fake — especially if the day closes on a down note.  With SPX currently wedged between the SMA5 10 and the SMA 5 200, it’s easy to imagine it flatlining for the next 5 1/2 hours.

 * * *

On another topic, we’ve been checking in on DB from time to time.  On Wednesday, it took advantage of a positive day for equities and gapped back above two channel lines below which it had broken down.

I thought it might do some backtesting, perhaps close the gap.  But, today, it broke down below both channel lines again.  It has SMA50 support, but this is a somewhat negative result considering TPTB were supposed to be propping it up.

UPDATE:  10:38 AM

Probably a head fake, but SPX is dipping below its SMA5 200 on CL’s sudden dip.  I’ll play along, with tight stops, if CL can drop through the purple TL and VIX (which is currently dropping) pops back above the red channel bottom. 

Note that, lately, stocks have often seen their low for the day at around 11:00am.

UPDATE:  11:16 AM

It’s storming here, and the power keeps going on and off.  But, I think there’s a decent chance that SPX is headed for the purple .618 at 2333.29 at the end of the session.  I’d short here with tight stops.  Let the falling SMA5 10 and, beyond that, the SMA5 200 be your guides.

If the power goes out again, I’ll drag a few laptops to the local coffee shop (good generator) and finish from there.  But, this looks like the most likely scenario for now.  We’ll get a better sense of things after the euro close.  Note that the backtest at the .786 of 2348.65 has been timed out.  And, the .886 doesn’t have long to go.

I’m going to gray out the falling white channel for now and replace it with one derived from the recent highs — like this.

My power just went out, again.  I’ll give it a few minutes, then possibly relocate.  Until then, watch your stops as detailed above.

GLTA.

UPDATE:  3:09 PM

The good thing about the power being on and off again is that I stuck around home, had a chance to avert my attention from the silliness of the “market” for a couple of hours.  But, there was a method to their madness.

By not tagging the .786 or .886 earlier, a meltup at this point wouldn’t backtest the rising white channel until well above the former highs.

I don’t know if that’s the intention, but at least it’s an unimpeded path, now.  CL found another leg up…

…and, VIX’s meltdown has been very similar to previous days.

USDJPY has been supportive, rising when necessary — though we’ll probably get the usual drop after the close.

The only chart that gives me pause re a meltup is ES, which has potential resistance around 2346-2348 depending on the slope of the falling white channel.  

It’s much better looking than SPX’s, which is just plain broken.

SPX is pretty much back to even on the day, which — by the 2011 OPEX study — means a 2/3 chance of a reversal on Tuesday.  But, it’s also a 3-day weekend, which has its own special set of guidelines.

I don’t recall the number or whether I ever calculated it (another item for my to-do list) but if I had to guess, I’d say that 3-day weekends produce gaps higher at least 2/3 of the time.  Having said that, I keep wondering if stocks will reconnect with reality at some point.

This might be a very good time, with complacency so high and volatility so low.  All thing considered, I’d rather be short than long over the holiday.  But, as always, only do so if you can hedge or deal with a potential gap higher.

Of course, if things turn around here and plunge 12-13 points into the close, I’d be happy to participate and then step aside for the weekend.

As long as the power stays on, I’m going to go back to my special project I wanted to get posted today, as well as update the gold and bond charts.

More later.

UPDATE: 3:36PM

Well-formed flag pattern in purple below…  If they want to close in in the red in order to head fake folks, or if they want to reverse it to 2333 in the next 30 minutes (or 3 days) this is a good spot.  It’s not a terrible place to try a short position, but just know that you might have to blow it out in the next 5 minutes.

 

UPDATE:  10:00 PM

Ran out of time, today, as my power has continued to waver.  I’ll be on the road Saturday and Sunday, but should get a chance to post those updates with late Sunday or Monday.  Have a great weekend, everyone.