SPX and ES managed to hold key trend lines and channels yesterday, bouncing from just short of our downside targets to exactly where we expected. All it took was an 18.3% hammering of VIX — no problem for the Masters of the Universe (real subtle, guys!)
But, there was no breakout. There wasn’t even an overnight ramp job.
This somewhat validates our theory about the oil and USDJPY two-step, meaning we should be looking for a big, sudden move in the currency markets as soon as today.
continued for members…
Oil has continued sideways…
…as USDJPY continues to sell off.
Futures, which held the purple channel top (a breakout) yesterday, are off by a few points… 
…though, VIX has done a pretty good job of preventing a serious tumble.
This leaves SPX in limbo, betwixt a recovery and a breakout.
If my theory is correct, USDJPY must dip down to the SMA200 before CL can make its move. But, it has to happen quickly, or CL’s move won’t make any difference for March’s CPI numbers.
SPX should react negatively to a big drop in USDJPY, except to the extent that VIX is able to offset it. And, just as I wrote those words, VIX began doing just that.
If I’m wrong, and the Fed is going to (a) suffer through another bump up in inflation, increasing interest rates and rate hike expectations, or (b) play the usual games with CPI in order to avoid any unpleasant truthiness, then CL will probably sit right where it is for the remainder of the month. If so, USDJPY and DX will probably do the same.
At this point, it’s too hard to tell. As weak as CL has been, RBOB continues to slip higher, busting the little H&S.
Last night’s ramp looks particularly troublesome to the bear case unless — and, this is critical — it gets a big reversal off its SMA200 (1.6512) and screams lower.
Looking at potential catalysts, we have consumer confidence coming up at 10:00, and four different Fed presidents (including Yellen) speaking. So, anything could happen.
UPDATE: 9:49 AM
In general, I’d want to be short — though it’s hard to say how effective VIX could be with USDJPY and CL working lower. I’d short here, but with tight stops at the SMA5 200 up at 2344ish.
UPDATE: 10:04 AM
SPX getting a boost from the consumer confidence report, popping up to tag the SMA5 200. I’d ditch the short position on any sustained move through 2344.80
UPDATE: 10:48 AM
They’re taking another swipe at the SMA5 200. Same deal, again. But, I would expect VIX to try a little harder this time.
UPDATE: 11:20 AM
SPX shot up past the SMA5 200, stopping us out. But, I’d be cautious in chasing it here. In fact, there’s a very good chance it falls right back. RB and CL both popped up to test their SMA200s, which should provide strong overhead resistance.
VIX continues to settle lower, and has plenty of room to keep going if they need it.
UPDATE: 12:14 PM
Well, it’s that time of the day when stocks either break down or don’t. In this case, VIX is still slipping lower, which is just enough oomph to push SPX past a 4-1 overlap. The premise, then, is the drop from 2400 to 2322 was a corrective A-B-C wave rather than the first three waves of something more impulsive.
But, often times this overlap is a head fake. I’d be willing to take that chance here, as CL and RBOB are unlikely to break out and USDJPY is facing its own difficulties. I’d take a chance on a short position with tight stops (VIX could easily spoil it.)
I’d abandon it if SPX pushes past the red channel midline around 2355.30.If nothing else, maybe we’ll get a backtest of the falling purple channel to set up an IH&S — whose neckline would essentially be the red channel midline.
The closeup on SPX shows the SMA5 10 arriving — meaning TPTB must decide between the IH&S and a plain old algo-driven ramp.
UPDATE: 12:57 PM
SPX was in the process of rolling over when USDJPY just popped up above the white TL. Though CL and RB are falling, this — along with VIX — could make it hard for SPX to fall much — if at all. With the SMA10 just above at 2360.78, we have to recognize this support, even if it is algo driven.
As mentioned before, I’d ditch the short on any sustained push above the red midline — now at 2354.50ish. If you decide to play along for the push to 2361, just make sure you use tight stops. And, keep an eye on ES, whose channel midline is at 2353 and SMA10 is at 2356.20.
My expectation is that the USDJPY, if it happens, will occur sometime after the close — when ES is more easily propped up. But, it’s far from a sure thing. API reports crude inventories after the close, and it’s the one that’s more likely to be inflated. EIA comes out tomorrow morning. If TPTB plan a takedown for CL/RBOB, releasing news of a larger than expected build would be a great start.
I’m going to sign off for an hour or two and post some other charts I’ve been working on. First up, gold.
UPDATE: 1:30 PM
Quick update…ES just reached its white channel midline. If it’s going to reverse before tagging its SMA10, this is the spot. This would also be the ideal place for SPX to put in a right shoulder for an IH&S. However, neither VIX nor USDJPY show any sign of reversing, and the SMA5 10’s are right below for continued support.
UPDATE: 2:15 PM
SPX and ES just reached their SMA10s. As they did, USDJPY shot up another .20 or so and VIX dipped below the red TL — all to make sure SPX and ES didn’t merely reach the SMAs, but popped up above them. The charts are below.
In making this move, however, ES backtested the neckline from its white H&S Pattern — meaning this is where it should reverse if it’s going to. I see no problem with reverting to a short position here. But, I would use very tight stops. 
If there is to be a big drop in oil, it’s obviously going to precede and not follow a ramp in USDJPY. Therefore, the goal is to get stocks as high as possible ahead of time rather than focusing on a recovery. I should have the gold charts up in 10 minutes or so.
UPDATE: 3:58 PM
SPX and ES remain where they were after ES reached that neckline. Will CL break down after the close or tomorrow morning? If so, best to be short overnight. Otherwise, this is another breakout waiting to happen.
Unfortunately, we don’t know: (1) what CPI number they’ll come up with on Mar 14; (2) whether the FOMC can live with it; (3) whether the last gas price surveys of the month have even been conducted yet. That’s a lot of unknowns.
As always, only hold short if you can hedge or handle the gap risk.
This is the chart to watch…
…with USDJPY being the algo star of the day…
…and, VIX taking top honors for a stunning — but, not terribly surprising — 25% drop since Sunday night.
A better look…