Japan’s downgrade and falling eurozone PMI’s have conspired to undo the usual holiday session ramp.  Futures are off 7 points at present, after falling as much as 13.5 points overnight.

It looks like we’ll get a reaction at the 1.272 Fib after all.

It’ll be tougher for USDJPY to come to SPX’s rescue, as it has lost the white acceleration channel in place since Nov 5.  But, as we’ve observed many times in the past year, the folks moving those particular chess pieces don’t care much about broken patterns or implausible recoveries.

As we pointed out last week, the bigger issues for equities are the US dollar which, in a bearish development, tagged the important .886 Fib retracement of the drop from 90 in June 2010…

…and VIX, which broke down through support in place since early July.  After leaving 4 daily candles below that support, it opened back above the channel bottom this morning. Last, 10 year yields have nailed our 21.57 target — the .618 of the rise from 1.614% in May 2013. Taking all the above into account, I’m looking for USDJPY to hold 117.85 and VIX to be hammered back down to or below that channel line.

The end result should be that SPX closes back above 2055 (but, below the SMA5 at 2065 after setting a record last week) in order to back test the red, dashed TL connecting the Jul 24, Sep 4 and Sep 19 tops.