As we noted yesterday, SPX is hanging on by the skin of its teeth to a breakout.  Despite an 18-pt intraday plunge, it recovered by the end of the session thanks to a timely decline in VIX and rally in WTI.  Will it be enough to keep the trend intact?

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The daily candle is close enough to the yellow channel bottom to call it a save.  But, futures are off several points again this morning. 

And, VIX is on the rise — likely headed for our target at 16.25 – 16.48.

But, USDJPY has reached the white channel bottom ahead of the SMA200 and could get a bounce for a few days.

It will need to clear the 109.75 price level to be of any help.

I suspect this is all designed to allow ES to tag support on this little red channel as well as the larger red channel.  If it doesn’t hold, the falling white channel suggests another 20+ points of immediate downside.If it holds, SPX should bounce from right here and recover to test the IH&S neckline over the holiday weekend.  Aside from the purple TL, the other key level is the SMA5 200 at 2354.95 — which is very close to the yellow neckline (which has yet to be properly backtested.)  I would want to be long here with very tight stops.

Here’s SPX with the same falling white channel as ES sketched in.  Clearly, yesterday’s reversal at 2337, which occurred a few points shy of our 2334-2335 target (yellow) was a little premature.  It leaves open the question as to whether the bounce was off firm enough support.

UPDATE:  10:01 AM

SPX is struggling to remain above its SMA50.  USDJPY and CL aren’t helping much, though VIX is falling just enough to keep it above the purple TL — now around 2348.80.

Remember, we have an EIA crude inventory report coming out at 10:30AM.  CL has been steadily approaching the .886 at 54.11 for the past two weeks, and yesterday’s API report was bullish.

Stay tuned…

UPDATE:  10:32 AM

The EIA says crude inventories decreased by 2.2 million barrels.  The bad news, however, is that Cushing is at all-time highs — 69.4MM versus capacity of 77MM barrels.

 

CL spiked higher for a moment, but is back to its .786 Fib.  SPX is following its lead, and dropping through the purple TL.  I’d revert to short on any drop through the SMA5 100 at 2348.76.

CL is slipping, and looks like it wants to tag its SMA5 200 at 53.19.  It would be enough to knock SPX off trend, so it’s a little tricky.  If CL drops through the SMA5 200, it’d be quite negative for both CL and SPX.

VIX is keeping SPX afloat……and USDJPY is still playing its cards close to its vest.

UPDATE:  10:38 AM

SPX is slipping below the purple TL, but has so far just head-faked 5 separate declines below the SMA5 100.  If CL gets a strong bounce off its SMA5 200, it’ll set up another head fake.  Even so, it makes me nervous to hold long as it keeps testing the SMA5 100.  Keep your stops where you’re comfortable.

UPDATE:  10:44 AM

I’ll probably be right back to long, but I’ll revert to short here.  CL is struggling with its SMA5 200 and USDJPY might not hold its red TL.A drop through 53.29 would be bearish and open it up to 51.6 or lower.

Note that ES’ red channel has completely broken down.UPDATE:  11:07 AM

A bounce off the white midline makes sense.  We’ll have to see what happens, thought, when it reaches the SMA5 10 at 2347.80.  If it pushes through, everything’s a go for the SMA5 200 tag and yellow neckline breakout.  If it can’t, then 2334.26 is in view.

At the current rate, it could reach the .786 without tagging the bottom of the falling white channel — if it’s willing to wait a while.  Note that the channel’s .236 line reaches 2335 a little after 3pm this afternoon.

UPDATE:  11:42 AM

ES just reached the midline of its falling white channel, which could provide support even though SPX doesn’t show much.

UPDATE:  11:58 AM

Now, SPX has tagged its midline, too.  I’d expect a bounce here, though it could be confined to the SMA5 10 around 2344.  Note, though, the SMA5 200 is approaching the purple TL.  A huge bounce would make that a target — though it seems unlikely.

CL has broken down below the .786 and SMA5 200.  So, this entire decline feels very much managed/engineered — meaning there’s a purpose and a target which is below current levels.

UPDATE:  12:09 PM

12:09 — often a turning point in bounces — and SPX just backtested its SMA5 10.  I’d look for a reversal here, but keep an eye on USDJPY and CL.

UPDATE:  12:21 PM

SPX is nudging up through the SMA5 20 on VIX weakness and USDJPY strength.  But, CL continues to falter.  And, VIX has bounced at the SMA5 50 three times in a row.  I’d hold short here.

UPDATE:  12:51 PM

VIX is getting a nice boost, but our 16.25-16.48 target isn’t that far off.  SPX should continue dropping, but I’d keep a close eye on VIX and USDJPY, which is testing its SMA5 200 again.

I have to run a quick errand, will be back in 10 minutes or so.  Watch for TL support at 2341.78, the 1.618 and .786 at 2334.26-2335.34, and the .886 at 2328.65.

UPDATE:  1:03 PM

SPX just tagged TL support at 2341.78 and got a nice bounce.  Bears need the bounce to stop right here.  Will CL be satisfied with a backtest?

UPDATE:  1:14 PM

Giving it just a little leeway in case the .886 is the target.  My only hesitation is USDJPY, which has pushed above its SMA5 100 again.  On the other hand, VIX has tagged the SMA5 50 for the 4th time.  The fact that it hasn’t plunged down to the SMA5 200 or below tells me this is probably an officially approved and scripted decline.

UPDATE:  1:40 PM

SPX is breaking out on VIX’s dip below red TL and USDJPY’s push above the purple TL.  Back to cash until this resolves itself.  Remember, VIX has support at the purple TL and the SMA5 200 around 15.35.  If it drops through the SMA5 200, SPX has a good chance of reaching its own SMA5 200 — perhaps as it reaches the SMA50.

UPDATE:  2:01 PM

Feeling pretty iffy about it, but we could get a reversal here at the SMA50 rather than the SMA5 200 as it’s also the white channel .786 line.  Back to short with relatively tight stops.

Note that ES has fully backtested the red channel.

UPDATE:  2:10 PM

Note that USDJPY is back below the purple TL.  I need to run out for a meeting and probably won’t be back until after the close.  I think there’s probably a 50% chance that SPX holds these levels until the SMA5 200 arrives at the SMA50 at 2349.60.  It’s equally likely it reverses between here and there and heads down to 2334 or 2328.  As long as it stays below 2350, I’d want to be short.

UPDATE:  2:51 PM

TL support, again.

UPDATE:  3:20 PM

USDJPY just snapped, sending VIX surging and CL popping to compensate.  SPX is down to the white midline again, where it could bounce.  VIX might have one more good run in it up to 16.25+; but, they might be looking to close the session at that SMA50/SMA5 200 intersection. I’d want to revert to cash above the SMA5 100.  As usual, shorting overnight should only be attempted by those who can hedge or handle the gap risk.  Watch your stops.

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