Keep an eye on USDJPY, which is due to react to under the major .886 (104.89) discussed yesterday.  Quick overview on SPX, which is likely to follow:

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Interesting chart from BofA, republished in Zerohedge this morning:

USDJPY has shot up on continuing dismal economic news out of Japan, reaching the .886 retracement overnight of the drop from 105.43.

This coincides with a smaller scale potential reversal for SPX.

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Today’s setup: end of the month and holiday bullish bias and channel support versus disappointing economic data here and abroad (and, that war thing in Ukraine that the “market” doesn’t seem to care much about.)

One wildcard is Japan.  The latest data was, again, horrid.  But, there’s increased talk of doubling the country’s pension plan’s allocation of stocks.  No economic recovery? No problem.  The carry trade should be safe for a while longer.

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So, the Head & Shoulders Pattern worked out after all.  Miracles never cease.  Last night’s plunge below the neckline hasn’t been erased by the inexplicable Q2 GDP estimate increase.

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Quick update on ES, which saw an interesting turn of events today…

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USDJPY is faltering.  Recall that it recently tagged the large scale .618.  It has been in pullback mode ever since.  As I first charted in December 2013, pullbacks from the top of the yellow channel have always resulted in large stock market declines.

The latest, which started around the first of the year, hit a wall — or, rather, a floor.  The BOJ has aggressively defended the 101 level — negating the damage to both the red and grey channel damage done over the past several months.  Due to the wonders of the USDJPY carry trade, this has put a floor under stock prices as well.

As the rebound off the last bounce off the floor has accelerated, SPX (purple below) has hit new highs.

If USDJPY’s pullback picks up steam, stocks should at least take a pause.  Keep an eye on the SMA10, which has held up since Aug 13. Two caveats before shorting anything:

1. it would be unusual for it to happen in the last few days of the month
2. most pullbacks in USDJPY have occurred in the overnight markets — leaving less of a mark on US stocks, and less of an opportunity for traders to participate.

One last warning…USDJPY’s SMA50 is gaining on its SMA200. A Golden Cross is in the offing if the pair can maintain its momentum for the next week or so.

GLTA.

No joy on ES’ H&S Pattern, as this morning’s push topped the potential head — just like last night’s dip below 1992.75 trashed the other harmonic patterns (and, stopped out lots of bulls, no doubt.)  In short, the “market” isn’t sure what to do at this point.

Potential IH&S for ES?  Looking for a potential pullback after SPX 2000, with USDJPY and interest rates representing at least temporary headwinds.

UPDATE:  11:00 AM

Small scale 1.618 for both ES and SPX.

The IH&S, if we get a pullback, for SPX.  USDJPY is slumping, but stocks are ignoring it at the moment.

UPDATE:  EOD

Save by the bell (and USDJPY.)  Stocks reversed at the aforementioned 1.618, but weren’t allowed to get any momentum going.  Interestingly, this leaves more downside potential.

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The yen continues to suffer.  Rumor is the BOJ is ready to admit things ain’t going so well with Abenomics — which would presumably increase the odds of expanding QQE.  Not so sure about an expansion, as inflation is clearly becoming problematic (on account of the cheapening yen.)  Then again, this the same government that refuses to tell their citizens the truth about Fukushima…

USDJPY tagged the .786 of the decline from the Jan 2 highs.  The pair looks overbought at 104+ but that doesn’t mean it can’t be more overbought.  CME/Globex has still not opened today (technical reasons) so who knows how US futures will respond.

The “market” is holding its cards close to the vest today, with everything poised to break out…just not doing it yet. ZN broke and is holding below the TL we identified a couple of days ago.  And, VIX is channeling lower, backtesting the support we discussed yesterday.

USDJPY, in particular, isn’t contributing to the bullishness in the short run.  As SPX comes up on its double top, remember that these patterns are not terribly reliable in an unrigged market.  In this one, we should be especially wary.

GLTA.

UPDATE: 10:05 AM

Keep an eye on VIX, lots of games being played today.