USDJPY, after reacquiring the purple TL and thus providing the stick save SPX needed yesterday afternoon, stumbled again overnight.

It just goes to show how essential a falling yen (rising USDJPY) is to higher stock prices.  Futures were off as much as 6.25 a few hours ago, but are — for now — safely above their version of the rising red TL.

Unlike SPX, yesterday’s bounce came close enough to call it a tag on the .618.  So, we can legitimately call the overnight weakness a corrective wave.  The only hitch now is whether or not USDJPY will play along.

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An early look at SPX:

The key for bulls will be breaking out of the falling red channel and regaining the red TL and, ultimately, the rising purple channel.

I could make a great argument for SPX continuing down to tag the purple 1.618.  But, the retrace all the way to the purple .618 would be a large B wave for such a small C wave.  And, the 5 waves lower are pretty obvious for the 2079-2034 decline.

So, the bullish case will probably require a reversal around somewhere between 2041-2047 — perhaps the red channel midline — in fairly short order. The purple 1.272 at 2041.44 looks like the best candidate if things fall that far.

Again, not to beat a dead horse, but USDJPY isn’t exactly helping things by playing dead as it is…

The red 118.17 would make for a good target if TPTB don’t prop it up at the .618.  Remember, backtesting and remaining above the purple .886 is key to the bulls’ case.

UPDATE:  10:50 AM

SPX came very close to the purple 1.272, reaching 2041.88 a few minutes ago.  I think we’ll get a nice bounce here — probably enough to clear the red channel.

USDJPY supports the move by virtue of completing the Bat Pattern at the red .886 as discussed above.  My only hesitation is that, like SPX, it came up slightly short of its target — meaning it might not be the end of the intra-day drop.

Tight stops are in order, as the retracement would seem more solid at the white channel midline at 117.75.

UPDATE:  3:50 PM

USDJPY did, indeed, seek out the white channel midline — tagging it at the red .886 (117.70 vs our 117.75 target.)  We should see support here, meaning a potential bounce for SPX as well.

Note that USDJPY has put in a decent floor at 117.34ish since Nov 20 (bottom of the red grid.)  Though the original rising channel is toast, this would suggest the pair will hold the purple .886 — though closing back below the white .618 is bearish.