For several years, buying the dip was the obvious thing to do. It even had its own YouTube video. But, lately, big meltups into the close have been a trap — at least until the next one comes along.  Yesterday’s action in oil futures (CL) was a classic.

A 4.7% plunge turned on a dime as stocks opened, and rallied 3.1% all the way until the moment they closed.  It was enough to erase a nice loss on the day and drive ES 16 points higher off its morning lows. It’s plunging again this morning.  Rinse and repeat?  Or, are folks waking up to the disastrous Japanese fiscal developments (another downgrade on the way) and the continuing meltdown in OPEC and wondering “why buy this particular dip?”

continued for members…It appears to be considering our purple midline target — currently around 46.50. ES is contemplating reentering the falling red channel that the CL ramp removed it from.  We’ll see.It’s enough to take SPX back to at least a backtest of its own falling purple channel at 2094-2095.Beyond that, it will depend on whether CL can hold yesterday’s lows of drop on down to 46.39.  It will also rest on USDJPY, which dropped nicely overnight and is .60 away from yesterday’s 108.25 target.Like ES, it’s trying not to follow the rather obvious and direct path to lower prices.Start out short, but watch for a reversal at SPX’s purple channel top.  Next target: the rising purple channel bottom.  After that, watch to see what CL and USDJPY are signalling.

UPDATE:  9:33 AM

That didn’t take long.  USDJPY and CL are still edging lower, so, I’m inclined to think there’s more downside.FWIW, remember our neckline backtest is down at 2080ish, right next to the red .618 at 2078.53.  Pretty sure we’d need new lows out of CL to reach it.

UPDATE:  9:38 AM

Spoke too soon.  CL is spiking, and there goes SPX.  I’d go to cash here and see whether the spiking CL or slumping USDJPY can influence it more.  My gut tells me there’s more downside.  CL usually has no trouble ignoring bad news (no OPEC deal last night.)  But, there’s clearly some selling pressure, and I do believe they’d like to take that channel midline down there — if only it didn’t take stocks lower.  I’d short again on any push through the channel bottom. UPDATE:  9:47 AM

I’d short here on USDJPY’s continuing drop.  So far, CL is doing nothing to stop it. UPDATE:  10:02 AM

Looks like we’re going to get a bounce up to the SMA5 10, currently around the purple channel bottom.  USDJPY is doing the same thing.UPDATE:  10:08 AM

Tagged.  USDJPY is reversing and CL, at least, isn’t spiking higher (for the time being.)  The ideal time for USDJPY to reach 108.25 is coming up at 10:30. UPDATE:  10:23 AM

Not crazy about this.  Once SPX gets on top of the (red) SMA5 10, it often acts as a lever for the algos to push prices higher.  If it catches hold, it’s likely going on up to 2095 to backtest the SMA5 200 (thick red MA.) Same potential for CL and USDJPY, which will break one way or the other any moment. UPDATE:  10:37 AM

That should do it for the backtest if it’s going to reverse. UPDATE:  11:05 AM

CL is spiking, and doesn’t seem interested in letting up.  I’d dump the short here and go back to cash until we see if it’s going to stick.A long position is probably safe here, but I’m a little concerned about ES reversing at its SMA5 200 at 2095.

UPDATE:  11:10 AM

ES just reached its SMA5 200 as CL is pushing up against tis SMA10 and SMA5 200.  We could get a reversal here, especially if USDJPY will reverse.  I’ll try reverting to short, but don’t hold much hope. If CL pushes through 48.88, all bets are off.Here’s another way of looking at CL…UPDATE:  11:29 AM

CL is pushing above the SMA10.  Back to cash.

UPDATE:  11:35 AM

Sorry…computer froze up on me at a really bad time.  CL is definitely threatening higher, but SPX is hesitating to follow along.   UPDATE: 11:50 AM

USDJPY is probably turning back down here, but CL keeps drifting higher every time ES/SPX downtick. The CL manipulation is so obvious, so clumsy, I sometimes wonder whether it’s a central bank (BoJ is top contender) or just the Saudis.

UPDATE:  12:00 PM

Okay, here’s a potential turning point.  I’ll give it one shot with tight stops, only because CL reached a TL of resistance at its .886 and might decide that’s enough propping for now.  If nothing else, SPX should backtest the purple channel bottom at 2096 or even the SMA5 200 at 2095.20.  If it drops through 2095, who knows?  Maybe a momentary reversion to sanity…Quick update on USDJPY: note that the purple SMA5 50 has offered good resistance lately.UPDATE:  12:48 PM

Trying to be patient, but it just keeps melting up, now on NKD and CL’s continued threats to break out.  Back to cash until we get some movement in USDJPY.

They’re just not going to let it slip any lower, at least not yet.  CL finally started declining… …but, only after bumping higher than the limiting TL and .886 Fib.  And, when it couldn’t go any further without breaking out (which, I guess, would be even more obviously an egregious manipulation…?  is that possible?) then NKD started ramping higher, out of the blue.I believe USDJPY still has its sights set on 108.25, but all this nonsense with CL is preventing it (so far.)  I don’t know when, but it’s till a safe bet.

I’m going to set some alerts on CL and SPX and turn my attention to some other charts for a while.  Comfortable in cash at the moment.

UPDATE:  2:09 PM

So, they made a new high, busted the bearish Fib, etc.  But, ES just ran into the TL from last week’s highs.  So we could easily get a pullback here.  I’d try shorting with tight stops and we’ll see what develops. We’ve been in this situation so often lately.  ES has technically completed an Inverted H&S Pattern that targets 2116 — which happens to be the 1.618 extension of the latest grid.  And, we had a reversal at the .786, so it would qualify as a Butterfly Pattern as well.

If they’re planning on going with it, here in the days before a FOMC decision, they’ll need to test ES 2101 — the white .886.  And, I don’t really see them trying it today.They’ve taken NKD all the way up to TL and SMA50 resistance, and USDJPY all the way to backtest support from last night’s lows (as well as the top of the falling purple channel.)  I think they’re more likely to let it settle back here rather than risk a reversal at ES 2101.41, which would necessitate a true break out for CL or USDJPY.

More often, they’ll take it very close, and let it fall back.  It happened yesterday with SPX (2100.97 versus 2101.38.)  It creates some rationale for another push higher — legitimizing the next ramp job. Note that SPX itself has completed a deep (.886 on the purple grid) retracement of a deep retracement (.886 on the red grid.)  It has also reached TL resistance (yellow, dashed.)  Either it’s truly done for the day, or we’re going to get a breakout here.  Tight stops are strongly advised.

UPDATE:  3:34 PM

Well, I was certainly wrong about ES’ .886.  Just nailed it, with 25 minutes to go till the close.  And, SPX made a new high by a few pennies.  So, at this point I toss out the usual comment about not shorting overnight unless you can handle the risk and/or hedge/monitor.  I think this entire melt up is total nonsense of the usual “ECB can do no wrong” variety.  I don’t feel as confident as last night, but I think CL and USDJPY will tumble after hours, when they can prop up ES quite easily.

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BTW, I am going to be out of pocket next Monday and Tuesday. I have an offsite in Lake Tahoe, and will probably be tied up most of the day.  I should be able to post first thing in the morning, but not intraday.  More details as we get closer.