Not to sound like a broken record, but it’s all about oil and the USDJPY this morning.

CL broke down overnight, but has found strong support at: (1) the bottom of the purple channel we suggested several days ago; and, (2) a combination of Fib levels including the white .786, the purple .382 and red .618.While, USDJPY has broken up through the pennant’s upper bound yet again — blunting the effects of oil’s slump.

SPX still hasn’t broken out of the red channel.

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The red channel that we were watching yesterday held.  From yesterday’s members’ section:

Note that the nearly horizontal red channel could provide for a quick reversal at present price levels – particularly if CL doesn’t hold at the .618 at 51.72.

CL didn’t hold at 51.72.  In fact it plunged to 50.8 — before a “mysterious” V-shaped  bounce into the close provided the help SPX needed in order to close in the green.

USDJPY got an assist, popping back above the top of the pennant pattern (in red, below) it had more than backtested.  But, it’s hard to ignore the glaring divergence between USDJPY and ES between Feb 11-16.

We’ve placed a downside target at the purple .886 at 2080.71.  But, as we discussed yesterday, it’s not the only target we’ve got our eyes on.

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As we surmised, SPX made a new high on Friday.  By poking through 2093.55, it technically invalidated  all those nifty bearish Fibonacci patterns.  Though, as we pointed out Friday, the last several times SPX eeked out a new high, there was a significant sell off.

First, the rally from 1982 has been fast and furious and fueled by a rapidly shifting news flow. We’re coming up on a holiday weekend, where big ramp jobs are commonplace — especially when it looked like the market was poised for a drop.

On the other hand, the past two new highs have been followed by large drops.  I see no reason in the charts to expect this will be the third, but that will depend on whether CL retreats and/or USDJPY — which is still in retreat mode after tagging that critical .618 at 120.11 — provides its usual ramp.

We got the new high, but we also saw USDJPY continue its retreat…

…and CL continue to slide.

The stage is set, but will CL and USDJPY continue to provide the necessary lift?

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Happy Friday the 13th, folks.  Here’s wishing everyone a blessed day and the very best of luck!

If you took yesterday’s daily forecast to heart, there was good news and bad news.  The good news came in the form of our initial post in the members’ section:

Look for the initial spurt to get SPX up to the purple TL.  It might well require a second wave to reach 2080, if it’s to happen today.

SPX did, indeed, race right on up to 2080 — in two waves, even.  The bad news is that we suggested it might be ripe for a short at 2081.75.

SPX just tagged 2081.75.  I’d want to be short at this point, with initial objectives of 2072 and 2068, but I’m a little nervous about USDJPY’s TL.  A nice bounce here, even if it fails to clear 120, would be problematic for bears.  Perhaps a tight stop — just in case.

USDJPY bounced, of course, meaning those stops came in handy.  Between USDJPY and CL — which is still climbing, up 3% on the day so far — the algo action was too strong.  SPX dropped only to 2077 before inching higher for the remainder of the day.

CL has run into resistance at the bottom of the white channel, so it might not be much help in the short run, at least.

But, SPX has an opportunity to make a new high — now only 5 points away.  And, the eminis are currently up 4 points.

USDJPY has recharged, and could easily take over the algo function all by its lonesome — if that’s what the script calls for.

I will be out for the remainder of the day, so I’ll leave you with this observation.  It’s a good day to exercise caution.  First, the rally from 1982 has been fast and furious and fueled by a rapidly shifting news flow. We’re coming up on a holiday weekend, where big ramp jobs are commonplace — especially when it looked like the market was poised for a drop.

On the other hand, the past two new highs have been followed by large drops.  I see no reason in the charts to expect this will be the third, but that will depend on whether CL retreats and/or USDJPY — which is still in retreat mode after tagging that critical .618 at 120.11 — provides its usual ramp.

I’ll be back on Tuesday, but have some very cool long-term charts to post over the weekend.

GLTA.

Yesterday went according to plan, with the initial and subsequent moves in SPX tagging both our purple and yellow initial targets. From the initial post (members section):

SPX might limit any initial weakness to 2064 or so — particularly if they’re able to hold the line on CL.  If USDJPY reverses, or CL continues to plummet, then we’re probably looking at 2057 (yellow dot) to flesh out the rising white channel.  In either case, the goal for bulls is to break through the white channel top and reach 2080.70 — the purple .886/1.272 combo.

We added the second purple target as a less likely option after the yellow target was nailed, but set our sights on the red target at 2080.70.  From the 1:30 update:

SPX just tagged our initial yellow target (I had been uncertain as to when it would happen, so drew two yellow targets this morning.)  I’ve moved our upside red target (2080.70) over to tomorrow morning, and added a the purple dot at 2053.54 as a potential downside target. I don’t see it as very likely…

As mentioned above, 2080.70 is the .886 retracement of the drop from 2093 to 1980, as well as the 1.272 extension of the latest, much smaller downturn.  It caught my eye when SPX bottomed at 2040 Monday afternoon — setting up an intersection between the two patterns.CL broke out of the falling red channel overnight — a net positive.

But, USDJPY gave up the critical yellow .618 Fib line at 120.11 — a real headwind for SPX.

Note ES’s behavior the last time USDJPY failed at this Fib line. Today’s targets coming up.  Continued for members...

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Yesterday’s forecast worked out reasonably well.  From the members’ section:

I’m looking for a pop in SPX to the purple .618 at 2060.74, after which we might see it retreat.

Then, after reaching 2060.74:

Just reached our first target at the .618.  I think it’ll keep going, probably up to the .786 at 2065.87 — though it might not be a straight line.

We took a shot at a short position at 2065, but with the understanding that we might be premature:

I’d take a crack at shorting it here at 2065.72…If I’m wrong, we should see the .886 at 2068.92 instead.

SPX topped out at 2070.86 before closing at the .886 at 2068.34.

This morning, we have a battle between the ill effects of tumbling oil prices……and the carry trade magic of a rising USDJPY.  Which will win the hearts and minds of equity investors? Or, more accurately, which will trigger the stronger algos?

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Yesterday’s forecast called for a dip to the 50-day moving average.  From the members’ section in our initial post:

I’m looking for the initial move to take SPX to our 2046.7 target, with a secondary target of the SMA50 at 2043.90. If that should fall, the next strong support isn’t until the white .618 at 2032…

SPX accommodated with fairly accurate tags at our target prices and times.

We finished up the day with some indecision about that lower white target:

Quick update…2nd target hit, and a 50:50 shot on the third.  VIX and bonds suggest it’ll happen tomorrow morning.  But, TPTB might easily hold the line here.  Hold the short only if you can hedge and/or handle the overnight risk.

For the umpteenth time, news (founded or not) out of Greece dominated the overnight sessions.  Zerohedge has been running a story (citing Bloomberg) that — following offers from Russia and/or China to fund its deficits — Greece has obtained a 6-month extension on its debt deal with the ECB.

Predictable, markets have ramped higher.  USDJPY broke through the trend line off the Dec highs — sending ES up over 12 points as we go to press.

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Isn’t it interesting how the exercise of democracy in the very cradle of democracy has the Eurozone scrambling?  No doubt the Troika wishes they could just turn back the clock, go back to the days of dictating economic austerity to member states.  But, central planning/banking has its limitations, and the Greek people have proven that citizens can, indeed, be pushed too far.

In other news, the Baltic Dry Index reached its lowest level ever today.  For those unfamiliar, it’s a measure of the price of moving raw materials by sea and an accurate reflection of global trade.

Friday’s shiny new unemployment report, which sent stocks soaring and bonds dumping, is likely to be forgotten as the Grexit again takes center stage.  Last Thursday afternoon’s forecast [see member section] proved fairly accurate:

Given the volatility and manipulation of the last two days, I wouldn’t be surprised to see SPX slightly exceed 2064 in order to stop out the bears before reversing.

When SPX overshot our target, we set our sites on 2073.28.  SPX reached 2072.4 before reversing on cue — bagging our first and nearly our second downside targets (2049 vs 2046.)

We concluded the day with an observation that there was more downside to come and that aggressive traders might wish to continue playing the downside.

With the futures currently down 11 points, that was the correct call.

USDJPY reversed nicely off the red TL as expected — though it topped out a little higher (119.21) than expected.

USDJPY, having done its job, will certainly retrace a great deal of this morning’s gains.  Look for it to top out around 119.08.

Today’s targets coming up. continued for members…
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This post updates our Jan 27, 2015 Update on Bonds:

This morning’s unemployment report has sent yields soaring.  The reasoning is that stronger employment will cause a stronger/earlier rise in interest rates than the Fed would otherwise have planned.

From a chart standpoint, the 10-year yield is very overbought.  In other words, we’d be aggressive buyers of notes here at 1.95% (128’150) with stops at 127’185.

Note that TNX has again tagged the underside of the rising red channel channel…

…while prices (ZN) have tagged an important .618 Fib where it intersects with the .236 channel line.

We think this bounce is very overdone, and are sticking with our Jan 27 forecast of a late February target of 1.53-1.58.  The ideal date: around Feb 20.

Because a channel bottom backtest is involved, the stops are pretty obvious.  A strong move north of this morning’s highs (19.53) would be cause for reassessment.

USDJPY says it all — busting through the falling purple channel top, the red triangle top and the last significant high — busting the downward pointing harmonic pattern in red.

With futures up 5-6 points at present, SPX will most certainly break horizontal resistance and make a second higher high.  Like USDJPY, this busts the downside harmonic pattern (gray.)

The employment report (and, especially revisions) supposedly increases the odds of a rise in interest rates this year. So, there is a dark lining to this silver cloud.  Watch out for the scenario we described in yesterday’s member section:

Given the volatility and manipulation of the last two days, I wouldn’t be surprised to see SPX slightly exceed 2064 in order to stop out the bears before reversing.

USDJPY, having done its job, will certainly retrace a great deal of this morning’s gains.  Look for it to top out around 119.08.

continued for members…

Unless SPX moves strongly through the top (2065), this is probably a good shorting opportunity.  Updated charts in a moment.

UPDATE:  9:53 AM

This is technically a megaphone pattern — a series of lower lows and higher highs (marked here with red lines.)  It can break out or break down.  But, the assumption is always a reversal at the bounds unless proven otherwise.  So, it can be played as a short, but with relatively tight stops.I also like the very well-formed rising wedge (also in red.)  If it does reverse, targets include the .886 at 2055 for starters, followed by the purple channel top at around 2046.

If it breaks out, instead, look for a move to the purple channel line crossing the 1.272 at 2073.28.

GLTA.

UPDATE:  1:13 PM

SPX eased up through the red TL signifying the megaphone top at 2065 to nearly tag our 2073 target (0.88 away), but has since fallen back below the red TL.  Note that the purple .786 was tagged, which makes for a decent reversal spot.  Downside targets, as detailed above, are the .886 at 2055 and channel top/.786 combo at 2046.

Note that I’ve sketched in a rising white channel that uses the rising wedge upper bound as its own.  This is purely speculative, but I often find that over-exuberant wedges broaden into channels when TPTB are determined to support a push higher.  The fact that the midline intersects with my downside target is a bonus, and lends credence to the 2046 target.

I probably don’t need to remind members (but, will anyway) that the normal and obvious downside targets such as backtests have been less than reliable ever since the market manipulation became commonplace over the past two years.  Stops are highly recommended.

UPDATE:  3:00 PM

SPX just reached our initial target: the .886 at 2055.  I still like the 2046 target more, but we’ll see.  USDJPY seems to have dug in at current levels, and may not come off until after the close.

I just posted an alert on bonds, which — IMHO — made much too big a move this morning.  In fact, it’s making me wonder if 2046 is enough of a downside move.

Thus, I’m throwing a couple of other targets onto the chart such as the red .618 at 2015 and the SMA200 at 1991.  It’s currently at 1979 and increasing about a point/day, so it’ll be there soon enough.  And, TPTB have been itching to tag it — just didn’t want to get things pointed in the wrong direction.  This way, they can tag strong support based on a Fib and SMA.

UPDATE:  3:35 PM

Cautious types might wish to take profits here at 2050 — a nice 22-pt gain from this morning’s reversal at 2072.  Aggressive types, especially those able to hedge their positions over the weekend — I think there’s more downside to come…

…especially if VIX pokes through that midline…

…and, USDJPY reverses as it should.

Just know that TPTB might plan on defending that purple channel top fairly strenuously — unless the megaphone pattern holds and it was all just a head-fake.

GLTA.