As we projected yesterday, USDJPY reached the .886 (118.59) retracement today.

In an unrigged market, this would suggest a potential major reversal as the pair completes a Bat Pattern.  But, of course, this is the BOJ and the Fed we’re talking about, so it’s entirely possible this resistance will be blown through as have many others.

The channel connecting the 1998, 2002 and 2007 highs has been broken — whichever way you draw it.  And, all we have left is Fibonacci levels and the rising gray channel from the 2011-12 lows.

Note that the white .618 retracement of the entire 1998-2012 plunge is just above at 120.05.  Seeing as how the dollar is still shy of its own Bat Pattern (88.477) we could see some consolidation here and a final push to 120.

In other words, don’t attach too much importance to this pullback, as it could easily be a head fake.  USDJPY has a TL of support at 117.8, and TPTB will no doubt be looking at ways to limit the downside ahead of the weekend (tomorrow is OPEX, after all!)

In fact, with the futures pointing to a 10-point decline, there seems little doubt that SPX will finally reach not only the 5-day but the 10-day moving average as well at the opening.  As we discussed yesterday, a new all-time record (24) was set for the number of sessions where SPX closed above the SMA5.  Finally reaching the SMA10, after so many days of straight up, is another reason for algos to bid the “market” higher.

UPDATE:  9:55 AM

SPX reached the SMA10 and bounced 5 points off the opening lows, led by ES and with a clever assist from VIX.

On Tuesday [see: Update on VIX] we put a target at 15.55 for Thursday.  Well, we just hit it — but, in a very suspect way.  With futures down 10 points at the opening, it was normal for VIX to open higher, which it did — 14.66 versus yesterday’s 14.02 close.

But, then, after SPX tagged its SMA10 and stocks were screaming higher, VIX soared up to reach our 15.55 target in a matter of a few seconds.   To state the obvious, VIX is supposed to plunge when stocks soar.

The bigger picture:

Now, all that is strange enough (not to mention prima facie proof of using VIX to manipulate the market.)  By tagging the resistance at the purple channel midline in a split second, before stocks have a chance to react, VIX was free to make new lows — justifying higher prices ahead.

But, wait, there’s more!  As I was typing just now…

Apparently someone felt the need to tick the white 1.618 box on the checklist, and just as quickly let the air back out of VIX.  Madness, to be sure, but to what end?

I suspect TPTB intends to keep a lid on today’s bounce.  First, there was some atrocious economic news out of Europe, Japan, China and the US.  And, it might look bad if the “market” rallies every time there’s bad news.

Second, there’s the 5-day moving average.  As we discussed yesterday, the fact that SPX hasn’t closed below it for (as of yesterday) 24 days was getting (horrors!) mainstream media play.  With the SMA5 currently around 2045, why not just let it close there and quiet the criticism of the market being rigged.  Complete a Bat Pattern on SPX first?  Just a thought.

In any case, keep an eye on VIX.  It’s no more a fear index than current stock prices are an accurate indication of the present value of a company’s future cash flow.  But, it might offer some clues as to the script being written for the next week or so.  More later.