Futures were up as much as 6 points overnight, largely on a rebound in oil prices back above the SMA10 on a heels of a (perennially wrong) IEA forecast of higher prices to come.Oil’s gains should fade, however, as we head into the cash open.  There are other factors at work that indicate yesterday’s decline might not be finished.

continued for members…

Note, for instance, that it’s backtesting the broken white channel bottom, and never did reach even the .618 Fib retracement of last week’s climb.

VIX backtested the flag pattern as expected, and might or might not be done.  We’ll have to see what kind of damage is done on the open.

While USDJPY is still toying with the idea of lower.

As of now, ES has held at the top of a falling channel that could go either way.  It’s obviously heading south, but it could also serve as a flag pattern if ES is able to break out to new highs.  Remember a flag pattern is ordinarily a continuation pattern (A=C) if it breaks out instead of down.

Look for SPX to backtest the white neckline at 2180 with a secondary target the top of the falling white channel at 2182.50.  If it can hold there, our downside targets are in play.  If not, new highs are in store.

UPDATE:  9:37 AM

SPX overshot the channel top a bit as VIX got crushed again on the open.  I’d short here with tight stops.

UPDATE:  10:20 AM

We’re getting a conflict here between USDJPY, which continues to soften, and CL, which is trying to extend its gains.  It resulted in SPX regaining the the neckline it briefly fell below.  But, that bounce looks tenuous, as ES is almost certain to test its SMA5 500 at 2175 — probably about the time that SPX’s SMA5 20 comes along at 2179-2180.  In other words, we might be exiting the short — but, there’s still a good possibility of lower. Keep an eye on VIX, which is on CL’s side in the tug of war.

UPDATE:  10:27 AM

VIX keeps getting hammered, and CL is extending its gains. I’m close to covering the short here as ES is pushing up above its short-term SMAs and SPX is close on its heels.  VIX is approaching the .618 retrace of the gains off of 11.02.

UPDATE:  10:35 AM

Covering, as VIX and CL are driving SPX to new highs.  NKD, which was setting up a nice backtest, just popped back above resistance.  CL is now up 4.1% from this morning’s lows.

UPDATE:  10:50 AM

There’s the .886 retrace of yesterday’s decline.  We could get a reversal here (also, note the five clear waves higher), but given that CL is now up 4.6% off yesterday’s lows, I’d say the odds of a significant reversal are fairly low.  It could be limited to a backtest of the the white channel top at 2181ish.  For those willing to give it a shot, your stops should be tight — which is easy when you’re looking for a reversal at the .886.

Interesting, but that 4.6% spike in CL produced a 0.45% increase in ES in the same time period.  What a deal.

UPDATE:  11:35 AM

SPX just pushed past the .886 (driven by NKD, more CL lower VIX, even USDJPY doing some ramping), so I’ll assume we’re heading to new highs.  Back to long here with tight trailing stops.  Upside target is 2190 and after that, 2200.

UPDATE:  1:33 PM

This is really quite remarkable.  Even the algos are calling bullshit on CL’s ramp.  It’s up 6.7% since last night’s lows, and hasn’t been able to get SPX up to new highs (though ES did.)  Now, they’re getting USDJPY into the mix with a breakout from the falling white channel.  And, even that is having a limited impact.  I’d go to cash at this point.  While I believe they’ll probably ultimately be successful, this lack of follow through by SPX is really unprecedented.  It could drop like a rock if traders come to recognize what’s happening.

UPDATE:  2:14 PM

Well, they did it — got SPX up over 2187.66.  I’d short here, as ES has reached the top of the purple channel it’s reversed off several times in the past.  Reasonably tight stops, of course.  Objective is 2178-2181, where we’ll have to determine whether to hold short overnight.  I would, just based on the ES pattern of retrenchment from that channel top.  But, of course, I always encourage folks to do so only if they can handle the risk of an overnight ramp job.

And, I’d especially short USDJPY.  It got SPX to new all-time highs — busting the bearish harmonic patterns.  That’s all it needed to do, so it should drop back into the falling white channel as it’s done every time for the past 3 weeks.  CL is also a good bet to short here, though it’s less predictable.