As we’ve expected, the whole rate hike argument collapsed this morning.  CPI, Core CPI and retail sales all missed.  The Fed will continue talking up the dollar, of course.  But, it isn’t looking good.

The US dollar is, predictably, tumbling — taking USDJPY along with it.After nailing our downside target yesterday and rebounding nearly all the way to our bounce target, equities are currently indicating a slight loss.

Only VIX, which is off 6.7% since reaching our upside target yesterday, and WTI, which continues on a suspiciously uniform rally, are keeping futures near even.

continued for members…

Needless to say, USDJPY is likely to backtest the channel it recently broke out of.The most likely target is 113 – 113.04 at the SMA10 and SMA100.Futures are currently off 2.75, and are back below the SMA10.SPX looks likely to at least backtest the purple channel midline at 2388-2389.  If it can hold there, it has potential to put in a Butterfly Pattern up to new highs at 2404.  If it fails to hold 2388, then it’s likely headed back to the yellow channel top at 2383.

The bulls missed an opportunity, yesterday, by not tagging the .886 up at 2397.69.  A modest pullback from there would have constructed 5/6 of a nice IH&S targeting 2414.

UPDATE:  9:46 AM

I guess that’s all we’re going to get.  I’d revert to long here with relatively tight stops.  It seems VIX has run out of room to bounce, so it’ll be up to USDJPY to drive stocks any lower.I had barely typed the above words when VIX, which had bumped up against the SMA5 200, suddenly plunged.   The only problem is that the white channel bottom and SMA10 are just below.  In other words, it’ll take a dramatic move to get SPX back to positive.  I’d dump the long position, or at least be prepared to ride it out, as we’re likely headed at least a little lower to our original target of 2388-2389.Business inventories and Michigan Sentiment are coming up at 10:00.

UPDATE:  10:07 AM

This feels like a delay more than anything else.  They might be shooting for a 10:30-11:00 tag of the gray .382 at 2388.61 where it intersects the purple midline.  It would be easy enough to accomplish with a push by VIX to actually tag the SMA5 200 and a drop by USDJPY down to the SMA10/100. UPDATE:  10:29 AM

This ought to do it. SPX overshot the midline a little, but I think it was in order to have ES tag its midline.  Back to long with tight stops.  Still waiting on VIX to reverse back below the SMA5 200. UPDATE:  10:35 AM

This isn’t clear cut at all.   USDJPY is still slipping, and CL has clearly broken down.  VIX hasn’t reversed strongly as it would need to in order to drive SPX higher.  Might be headed for the .618 at 2387.08, but that gives away a lot of momentum.  Watch your stops and cut the long position loose promptly if VIX pops. UPDATE:  10:47 AM

SPX is slipping further, and VIX is doing nothing to stop it.  I suspect the .618, but can’t rule out lower as CL and USDJPy are still dropping.  I’d ditch the long position on any dip below 2387.If they can get CL down to its SMA10 at 47.32 without breaching SPX 2387, then the resulting CL bounce and VIX dump should offset DX/USDJPY’s weakness.  The alternative is to get USDJPY down to 113 and let its bounce support CL.  Either way, this is a little tricky.  Stay tuned.

UPDATE:  12:28 PM

VIX is still slipping higher, and SPX/ES slipping lower.  I don’t see much help from CL or USDJPY, but that could change any time.  Just a reminder to keep an eye on your stops.

Right now, SPX is hinting lower.  I’d keep an eye on the SMA5 10 and SMA5 20.  When the 10 crosses below the 20, it’s a short-term bearish sign.  So, often this represents either a break down or gives the algos a signal to goose equities.  Either way, it’s a pivotal moment and should give a good signal as to direction.

UPDATE:  12:55 PM

Not looking good.  I’d ditch the long position and go to cash here.  There’s always an opportunity to go long again if it tops the red TL or short if it falls through the purple .618 at 2387.08 — which it didn’t quite reach before.UPDATE:  1:51 PM

FWIW, SPX just broke past the red TL as ES topped its SMA5 200.  I suppose this is a buy signal, so I’d go long with very tight trailing stops — with ehe red TL as a line in the sand.  Don’t know if it’s going anywhere, but that’s the signal that’s being shown. The hitch, here, is continued dollar weakness — as seen by USDJPY’s little break down.Obviously, the SMA5 200 is much lower than it was when it rejected SPX at the close yesterday.  It’s also below the SMA10, now, meaning there’s extra overhead resistance for SPX to deal with.

This is not a compelling upside environment.  Yet, we’ve seen SPX rally in worse situations based solely on a big VIX dump.  So, I wouldn’t rule it out.

Partly because I don’t want to be whipsawed for the rest of the day, and partly because I have other charts to catch up on, I’m going to set some alerts and sign off for now.  If anything momentous happens, I’ll check back in.