ES reached our .618 target overnight…

While, the USDJPY is merely treading water.

Yellen’s testimony is due out at 8:30ET.

UPDATE:  3:50 PM

USDJPY has reached a potential channel top — though 102.85 or 103.12 intraday would also make sense.  I like the idea of a fifth wave down here.

SPX has come within a few points of the .786 and has tagged the .786 from below.

Do ya’ suppose the TL we’ve been watching on USDJPY is important?  Someone’s sure supporting it…

EURUSD has probably reached an interim (at least) reversal spot.  The purple .618 at 1.3733 would be more persuasive, as it intersects with the multi-year channel top.

The little ES channel — which neatly contains last Friday’s 30-second correction — needs at least a fleshing out.  A .786 corrective wave would take prices back to the falling white midline at 1745.  The near-term objective remains the .618 at 1803.

The craptastic NFP report undid the overnight ramp — for all of two minutes.  The futures bounced strongly and are trying to find some equilibrium.  The USDJPY, back above the red TL for now, continues to drive equity prices.  Very reminiscent of the taper pop — with the PPT’s hand clearly caught in frame…

Even the talking heads can’t explain the melt-up — just like back on Dec 18 — because the honest explanation would be bad for business: the market’s going up because TPTB need it to go up in the face of really bad news.  They are buying everything in sight in order to ramp it right on through into the close and, ideally, scare the bears into capitulation.

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This seems like a breakout, but is probably just a backtest of the all-important and recently broken red dashed TL on the USDJPY (note also the channel midline coming into play.)  If so, this rally should be faded.

The TL’s impact be seen quite clearly on the long-term USDJPY vs SPX chart.

Backtests have led to rallies, but those rallies have failed when the backtest completed and the pair continued falling — as it should this time.

The yen is falling because the euro is strengthening.  Why?  The ECB didn’t further crush the common currency as widely expected.  These days, a falling yen equates to stocks rallying.  If the euro continues to rally, stocks should follow.  But, it don’t believe it will.

Look at the long-term EURUSD chart.  Remember, dollar strength drives the the pair lower; euro strength drives it higher.  The yellow channel is the most dominant over the past 20 years, but the falling white channel is currently guiding the euro lower.  The pair just tagged the top of the channel on Dec 27 — the same day USDJPY topped out.

The pair had dropped through the yellow midline and the white midline in early 2012, but rallied back above both after QE3 was introduced.  On Dec 27, it reached the .618 retracement of the last big drop (from the last time it tagged the channel top) as well as the white channel top itself.

In so doing, it also backtested the yellow channel .618 line (a fourth time) and the .382 Fib of the rise from 1.18 to 1.49.   Close-up, it appears to have a chance at rising further, but should at least flesh out the purple channel bottom first — likely the red .618 at 1.3406.

Regardless, the path ahead is not rosy for the euro.  As tough as things are elsewhere, the EU economy and banking system is still on very shake ground.  A stronger euro would decimate the exporting countries which are the worst off.  The ECB will ease, and the EURUSD will tumble.

Japan, which has done all the easing they possibly can (to no avail) is probably done — which leaves the yen as the strongest (technically speaking) and the euro the weakest — with the USD representing the middle ground with a QE iron still in the fire.

Keep an eye on the USDJPY, which in addition to the red trend line is coming up on the .618 of the last major drop (from 102.92 to 100.74.)  If its rally fails here, SPX — which is also approaching a .618 at 1772.37 — should also fall back in line.

UPDATE:  3:00 PM

Both USDJPY and SPX have reached the .618’s discussed earlier.  Do or die time for the rally…

USDJPY completed a little Bat Pattern…

…but, this was the backtest of a broken channel bottom.  There’s plenty more downside, with the immediate objective the yellow midline.

It might provide a good bounce spot, as it has several times in the past year.  Look for it to line up with an SPX bounce such as the Sep 19 high (1729.86) or the purple channel bottom/yellow .618 combo.

At 1724, the S&P 500 will have dropped 6.8% from its high — a breather not unlike the others of the past 16 months.  If the purple channel should fail, however, things get real ugly real fast.  I think it will — as the USDJPY chart that confirmed Dec 31 as an important top is still very much in play.

The e-minis narrowly escaped one H&S Pattern, but are threatening to form another which targets 1714ish.

The usual overnight low-volume ramp job — this one into a flag pattern that got ES back to the falling red channel midline and backtested the broken white 1.618 Fib.

So, last Friday, I’m channel surfing and hear an unbelievable rant from everyone’s favorite cheerleader Jim Cramer:

You know what? I’m getting pretty darned tired of the tyranny of the S&P futures, where the market gets hammered from the get-go for no particular reason. And people panic simply because they figure those futures traders must know something.

He goes on to exhort his followers to ignore the futures action and buy the dip because Monday (yesterday) would be up big…but, that’s another story.

The part that flabbergasted me was the notion that low-volume overnight futures trading was somehow unfairly depressing the markets.  This was the same day another CNBC  bobble-head (Pisani) was going on about how investors should ignore the ugliness in the DJIA since it was more sensitive to disappointing earnings reports than was the SPX (we wouldn’t want earnings to affect stock prices, would we?)

So, I was excited to tune in this morning and hear him rant about the futures action unfairly propping up prices overnight…except it didn’t happen.  In fact, it never happens.  In all the years I have suffered through MSM coverage of the stock market, I don’t think I’ve ever heard anyone talk about the nightly ramp job that has become a staple of the market.

In the past week alone, the futures have ramped higher 5 out of 7 times.  It’s almost a certainty after a big decline during market hours, as last night’s action demonstrates.

Here’s the previous week’s.  Note the pattern from last weekend, which is practically a template for last night.

Lest anyone believe that even two weeks doesn’t a pattern make, here’s the past month of ramp jobs — many featuring the exact same slope.  I wonder if Cramer will put this chart on Mad Money.

A reminder to our readers: CNBC and its ilk exist simply to display ads paid for by you when you patronize the firms whose continued existence relies on an ever-increasing market.  When the market goes up, it’s proof that all is well in the economy.  When the market goes down, it’s just the market taking a breather after rising so much, so fast.  Or, so they say.

More later.

The falling purple channel in USDJPY has broken, and the third H&S Pattern has completed as expected.  In other words, the yen’s appreciation has accelerated — a definite negative for stocks.

Yet, ES has reached the bottom of one rising purple channel.  So, the market is clearly at a crossroads.  The problem for bulls is that the rising purple channel is the most bullish scenario.  There’s a more bearish option that argues the bounce isn’t yet here.  Note the white channel has plenty of downside to go.  The bottom is currently around 1724.

And, if neither channel holds, there’s always the larger channel that has guided prices from the 2009 lows; the bottom is currently around 1670.  And, lest anyone forget, the recent top was a very large Butterfly Pattern completion.  A mild reaction would be back to the prior top: in this case, 1546.75 on ES.

A common reaction would be to the .886 (1441) or .786 (1350) — which would fit nicely with the attractive alternative to the big rising white channel.  And, for the uber-bears, how about the .618 at 1194?  Would the Fed permit it?  Probably not.  But, unlikely as it is, if the Fed somehow took a hands off approach to the markets, it’s the best looking outcome on the charts.

Coming up, targets.

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Quick snapshot of the harmonics for the e-minis:

As anticipated, ES has reached the 100-day moving average.  If it behaves as in previous encounters it won’t stop there; it will dip slightly below on the first test — probably the white .382 at 1757.46 after the open.  The SPX needs to tag its SMA100 at 1769ish.  The May 22 1765 high would be appealing, but that would mean breaking the Dec 18 1767.99 low (the rally designed to convince us tapering would be good for the markets.)

As we’ve frequently noted over the past few weeks since Dec 31 [see: The Top?] the rising channel should get fleshed out in any decent sized correction.  Now that it has, the market must decide whether or not a 4.3% decline is enough.

Teetering at the edge of a cliff isn’t so bad if the cliff is a few feet high. But, as we’ve discussed many times (long before it was fashionable, I might add) this cliff is a mile high — thanks to Bernanke and friends.  The degree of panic that has set in over a 4% correction is ample proof of the faith investors have placed in the Bernanke put.

The currency markets turmoil represents a real and potentially devastating threat.  As detailed in our last major USDJPY update [see: USDJPY Dec 27] the S&P 500 has declined anywhere from 22 to 57% the previous three times USDJPY tagged the trend line it recently reversed off.  The market’s future direction should be clear.

Yet, as we’ve seen time and time again, the FOMC, ECB, IMF, the MSM — someone has always swooped in and “saved” the market.  Hence, the view from the crumbling precipice.  I’ll post targets for both the upside and downside cases over the weekend.

to be continued…

Another day, another ramp job.  Will it stick this time?  USDJPY is facing resistance at the red .618 and the red channel top (the channel within the white channel.)  The red channel is the same slope as many past USDJPY sell-offs, including that of 2007-2008.  So, it’ll be interesting to see if it holds.

If it can get back down to 101.74, it’ll complete the right shoulder of a rather large H&S Pattern targeting “ugly on a stick.”

Considering that the initial decline in USDJPY ushered in an 80-pt decline in SPX, it’s probably fair to say another like-sized decline in USDJPY would knock stocks back another 80 points or so.

Will the H&S play out?  I think it’s fair to say TPTB will make a strong effort to defend the neckline.  Extending it to the left, we can see it’s part of quite an important trend line.

It stopped the plunges in late 1999 and early 2005, then failed in 2008 — the fleeting bounce back above correlating with stocks’ Mar-May 2008 bounce from 1256 to 1440, and subsequent plunge to 666 Mar 2009.  A failure to push above it in April 2009

USDJPY pushed slightly above it for a few days, but failed to hold it in May 2013.  It peaked on May 22, as did SPX before plunging 100 points.

SPX recovered, of course, breaking above the trend line again on Dec 18 — the day which shall go down in history as one of the biggest and clumsiest plunge protection efforts ever.  It was the day the FOMC announced the long-awaited and much feared taper.   The PPT turned the initial plunge into a 43-pt gain — just missing the top 20 single day point gains of all time.

The futures — which, if you don’t know by now, is how the market is “managed” — pushed back above the 1.272 extension of the 2007-2009 crash (a critically important line in the sand in its own right) and didn’t look back.  That 1.272 extension, by the way, is roughly the shoulder line on the ES H&S I’m tracking that points to another 84 points of downside.

Will it or won’t it?  We’ll have to wait and see.  A strong push above USDJPY 102.82 could encourage ES up to 1813 or so — fleshing out the larger right shoulder.  While, a plunge back through the neckline at 101.75 should get things going to the downside.

Coming up, targets.

USDJPY and ES have retraced .886 of yesterday’s ramp.  Bulls need these levels to hold, as both are nearing channel support.

But, watch out for SPX’s SMA 100 down at 1766.89.  A new low there, and the ES to the larger scale .886 at 1764.55 could unravel things as stops are triggered.

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