SPX landed right where we expected yesterday, the bottom of a sharply rising channel that — were it to continue — would levitate the index to 2500 by next week.  That, of course, was before things got crazy in the currency markets.

I’ve been pretty adamant that EURUSD overshot in its recent push past our 114.70 target.  I still don’t buy the idea of the ECB tightening any time soon.  The most recent ECB minutes appear to confirm this viewpoint.

The appreciation of the euro to date could be seen in part as reflecting changes in relative fundamentals in the euro area vis-a-vis the rest of the world” but “concerns were expressed about the risk of the exchange rate overshooting in the future.”

The EURUSD sold off further on this and other choice comments……with the net result being another breakdown for ES.

Fortunately for equities, CL reached our downside target this morning and stands ready to prop stocks up — at least in the short run — with a nice bounce of its SMA50 at 46.46.  But, with both EURUSD and USDJPY tumbling, will it be enough?

continued for members…

While the gray channel will break down, look for SPX to backtest the small falling white channel it broke out of.  Our downside targets are, as mentioned yesterday, 2458 and 2450.  As we’ve noted several times, if the red channel breaks down (2450ish) then things could get really interesting — with the SMA100 and SMA200 coming into view at key Fib levels at 2415 and 2335.

Note that the larger white channel which SPX has now broken out of and back into (twice) is still in play.  This is a charting mess, the sort which is often seen in the NKD but not as commonly in SPX.The white channel I’ve sketched in is parallel to the red one from two weeks ago.  It’s a work in progress, but these things often work out.To round out this morning’s picture…VIX leaked higher overnight but now has plenty of room to fall.  And, USDJPY is digesting some of its gains from the last two days.  The euro’s weakness certainly hasn’t translated into dollar strength versus the yen.While we wait to see whether VIX will dip enough to produce a V-shaped recovery, I’m going to work on posting some oil charts that I’ve been noodling over.

UPDATE: 10:01 AM

That didn’t take long.  We’ve got the 2458 tag and will watch to see whether or not VIX reverses.  I don’t see anything wrong with trying a long position, as long as you keep your stops very tight.  The SMA 5 10 is fast approaching, and SPX is obviously without much support here — none if VIX doesn’t reverse.UPDATE:  10:12 AM

There goes 2458, back to short for 2450ish.  The support isn’t that clearly defined (gray .618 at 2451.95, but SMA50 at 2450.12), so again, we’ll keep a close eye on VIX.UPDATE:  10:25 AM

Got a nice push that almost reached the SMA50 before VIX decided to take a nose-dive.  This would be a silly place to take a stand, so close to actual support, but crazier things have happened. Note that CL is bouncing quite nicely.  I’m working on an upside target, but note that this level is important support.  If it fails, the next support is down at 45-45.25.UPDATE:  11:07 AM

Either SPX reverses here or gives up on the SMA50.  I’d take a chance at reverting to short, but with very tight stops. UPDATE:  12:13 PM

There’s the SMA50 and, potentially, a channel bottom tag as well.  I’d cover here at 2449, but be prepared to short again if it doesn’t hold.

UPDATE:  12:37 PM

SPX is struggling to hold the red channel bottom, here.  VIX continues to rise — the biggest problem.  CL has retreated from its intraday highs.  And, USDJPY is slumping.  I can’t stress enough how important this support is. 

The SMA5 10 will arrive shortly.  If SPX can’t jump back on top of it and rebound here, and the red channel breaks down, then support is way down at 2415, followed by 2335 (remember, the 1.618 and SMA200 combo we talked about last week.) UPDATE:  12:52 PM

Slip sliding away, here.  I’d consider shorting if it doesn’t hold the gray .786 at 2445.71.Correction…shorting with very tight stops.

UPDATE:  1:07 PM

VIX has reached a .618 retrace of the drop from 17.29 to 11.25.  As it slows, SPX has bounced a bit. Too early to say whether or not the .886 will hold, let alone 2437.75.  At present, everything seems fairly well controlled.  In other words, keep a very tight reign on this short, Particularly if SPX approaches 2445. UPDATE:  1:34 PM

It appears SPX will recover, here, as VIX continues to back off.  I’d ditch the short position and revert to long.  Am I confident in a recovery?  Nope.  But, I would hope that TPTB understand the predicament they’re in and will keep the pressure on VIX and CL.

UPDATE:  2:18 PM

Dropping through the .886.  Back to short, still with tight stops.

UPDATE:  3:50 PM

The wheels seem to have come off…   SPX just tagged 2430, a 37-pt drop.  Our downside target remains 2415, with a pause at 2423 quite possible.  VIX is trying to hold its own, but USDJPY has given up and CL has had a hard time staying positive.  We should expect to see some effort made overnight to stabilize things.  So, as usual, don’t hold short overnight unless you can hedge your position or deal with the gap risk.

Why?  ES has a trend line of potential support here……though, VIX has no overhead resistance at these levels (not that it usually matters.)