Breakout or Break Down?

SPX has been holding on to the breakout it accomplished on Feb 10, but is having a hard time convincing traders that it belongs here. The price action in ES suggests it isn’t legit… and might not last.

continued for members…

Note that ES’ yellow channel breakout has already failed.But, SPX is clinging stubbornly to its.With last week’s dip below quickly recovered.

The key should come at 2343.50, the gray channel bottom and white midline. If it holds, the breakout should creak along. If it breaks down, then the yellow target is in play.Closer in, I’d want to short on any dip below this little red TL at 2354ish. But, we might get a run up to the SMA5 10 or even SMA5 200 before it gets started.USDJPY is faltering, and CL is ramping. VIX looks likely to facilitate at least a little rally as it pushes down through the purple midline to test the SMA10 at 12.33. UPDATE: 9:45 AM

SPX just tagged the SMA5 10. ES suggests it could go a little higher, though the SMA5 200 would mean a breakout for ES. I’ll give it a few minutes before pulling the trigger.

UPDATE: 10:00 AM

I believe it’s going to give way. I’d short here for 2341ish. The gray channel bottom and white midline are around 2343, but the red .618 is at 2340.65. Could be messy — though the mess could be resolved by delaying the dip to tomorrow, when the white midline crosses the .618 by the end of the day. Last, watch out for the SMA10 at 2353.33. Keep a close eye on VIX, too, as a dip below the white TL could undo any downside for SPX.ES might seek out the intersection of the red channel bottom and white 1.618 at 2338.87, which would be the equivalent of SPX 2343ish.UPDATE: 10:31 AM

It might be just a backtest, but SPX just popped back above the SMA10 on VIX’s drop through the white TL. Watch your stops.

Note that VIX still has support at its SMA10 at 12.33.Two things could turn it into more than a backtest: the SMA10, which is now support, and ES’s yellow TL up at 2354 — which would be the equivalent of 2357.50ish.

UPDATE: 11:05 AM

Going to cash here as VIX is dumping and USDJPY and CL are jumping. It seems very likely that SPX is simply waiting for its SMA5 200 to get close enough in order for it to pop up and tag it. At this point, it looks like the next backtest of the red TL could turn into a run up to 2361.25. That doesn’t concern me much except for the fact it would mean ES broke out past its yellow TL — a breakout it might be hard to undo.

Again, I’d be a lot less nervous about shorting if SPX had already given up the yellow channel breakout. I think the breakout/breakdown question has created a chasm between the outlooks of ES and SPX traders. That chasm could continue to shroud the market in uncertainty.

UPDATE: 11:22 AM

Revised SPX chart — IF the downside case is still intact.UPDATE: 12:19 PM

SPX is coming up on the SMA5 200. I have to step out for 15 minutes, but I’d plan on shorting here or wherever it is when they connect.

UPDATE: 1:02 PM

A small drop ends at support. CL suggests it will bounce up to the SMA200 as it arrives at the former high (2059.80ish.) USDJPY, on the other hand, suggests it keeps on dropping. If you cover here, just know that you might be re-shorting in only a few points higher. UPDATE: 2:18 PM

Here’s the actual tag of the SMA5 200. Should be a good place to short for anyone who didn’t earlier IF the downside case is still intact and this was just a delay of the next leg down. Stops should be relatively tight for the reasons given below.USDJPY could really help the downside by breaking the white TL.Risks include those mentioned earlier: ES’s breakout past the yellow TL, CL’s additional upside potential, and VIX without much of a floor here. UPDATE: 3:55 PM