It’s quad-witching Friday, which means we’ll likely see plenty of swings and plenty of head fakes in the light volume ahead.  Our analog remains on track, with no change in our outlook.

continued for members…

VIX has been smacked down again, overnight.  Keep an eye on the SMA 10 and 20 at 12.46 and 12.7, as well as the SMA5 200 at 12.83.  How VIX moves in relation to those should determine today’s price action for SPX.Oil got a boost for no particular reason, gapping past the purple channel midline on absolutely no news that I could find after the close yesterday.

USDJPY has run out of real estate unless it wants to make that final spurt up to 120.11 — which I don’t see as likely just yet.

The 5-min chart shows it has flatlined for the past 24 hours.

Otherwise, things are pretty quiet. ES’ 2.50 point gain overnight will place SPX right at the SMA5 200 at 2267.28, at which point we should see a decline.  The only tricky part is that the analog called for a potentially bigger rally yesterday that could have greatly erased Wednesday’s losses.

It didn’t come close, which means today’s decline can move ahead, or that the price movement has been delayed.  That’s why we’ll want to watch the indicators especially carefully.  CL is angling to move stocks higher.  But, that’s no different than any other day.  I’m more interested in VIX, and whether it can finally break out past that .618 Fib at 13.41.

As discussed yesterday, it could happen today or Monday.  Note that the SMA10 is up to 2240, just below our 2243 target.  So, we could get an overshoot today, or we could hit the SMA10 on Monday when it, along with the purple channel top, is up to 2246-2247.  The tilt of this falling purple channel isn’t real solid, so I can envision that scenario playing out — especially if they support SPX at a backtest of the white triangle at, say, 2261.80.

UPDATE:  9:37 AM

SPX has reached the SMA5 200.  For anyone not already short, this should be a good entry with a built-in stop level.  

For those watching RUT, note that it’s trying to break out again today.  It had a nice run yesterday, popping out of the falling white channel only to close back at the channel top.

UPDATE:  9:56 AM

SPX has closed this morning’s gap, and VIX is already reacting.  If they’re going to hold the line, this is probably it. Note the presence, also, of the SMA5 10 and 20 and the purple channel .236 line.  I’d revert to long here at 2263.29 with very tight stops, only because they could derail or, at least, delay the downside by dropping VIX through the white channel bottom at 12.45ish.  I don’t think they will, but we can always reshort if VIX bounces near there.  I think we’ll be doing so shortly.

UPDATE:  10:03 AM

I’d revert to short here at 2264.07. VIX is bouncing above 12.46, though the risk of a quick spanking remains.

Note that CL is nearing Fib fan and channel resistance as we approach 10AM, frequently the time when the initial morning’s surge peters out.

Could USDJPY be gearing up for a move?

I meant to mention NKD earlier.  It has been backing off for the past 24 hours, with no signs of a breakout.  If it can drop through horizontal support — also a channel midline — at 19385, it would be a very good sign for our forecast playing out.

UPDATE:  10:15 PM

VIX is dropping through support and CL is rebounding.   Are they trying to effect a reversal or merely slow things down?  Watch your stops.

UPDATE:  10:26 AM

SPX keeps slipping sideways to lower, but VIX is getting smacked pretty hard.  CL just popped above resistance.  There must be a lot of selling pressure out there right now.  USDJPY and NKD are still comatose.

VIX is screaming “cover!” but SPX isn’t responding.  So, I’ll hang in there with the short position for now, sweaty palms and all.  The first big test is coming up: the bottom of the white triangle at 2262.98.

So very weird to see VIX and ES moving in tandem. Now that SPX has broken down through the white triangle bottom, VIX is moving higher — and, SPX with it!  It’s about to break back into the triangle.  Going to cash here until things quiet down.

NKD just ticked higher and broke out, signaling that it’ll join in the manipulating.  Will it last?  Who knows.  But, I’m perfectly happy on the sidelines until SPX drops back through the white triangle bottom, now at 2263.22 and rising.  At that point, I’d want to be short again.

Swing traders should be fine staying short.  But, know that this could still run up to 2274 before it plays out.  For now, the SMA5 200 at 2266.20 is back in the picture.

UPDATE:  11:07 AM

And, just like that, right back through the triangle bottom — triggering our short again at 2263.50.  Next stop should be 2254.  A bounce there at what would be just shy of a .786 retracement (of the rise from 2248.44 Wednesday to 2272.12 Thursday) would set up a potential Butterfly Pattern to a 1.272 extension at 2242 — right in the middle of our 2240-2243 target range.  The 2.618 extension, BTW, would be at 2210 — right next to our lower downside target.

I assume the market makers just needed a bump in order to get their short ducks in a row.  But, obviously, watch your stops.  A rise back above 2263 is problematic and should trigger covering.  I’ll be away from the desk until 12:00.

VIX is finally moving in the right direction,…and, NKD’s breakout was a total headfake.  If it doesn’t hold the midline and horizontal support, our short should get some legs under it.

UPDATE:  12:15 PM

Still hanging in there?  Good.  NKD and USDJPY have broken down, even as CL melts up and VIX continues to play games with the channel bottom.  In what, otherwise, would be a very confusing day, it’s nice to have the analog guiding us.  Our next test should be around 2254.

UPDATE:  1:20 PM

This is pretty close, and VIX just ran out of room unless it breaks out.  Note, also, that ES has support here as it backtests the ridiculously steep channel it broke out of last week.  I’d revert to cash here, and short if it drops through the channel midline at 2254.  Why cash?  I’m not confident enough that this bounce will amount to anything, especially as the SMA5 10 comes along in a few.

If VIX starts to break out, I’d revert to short in a hurry.  Here’s a close-up of the ES support.

UPDATE:  1:29 PM

VIX is breaking out, waiting to see if it’ll go past the SMA5 200.  I’ll be happy to reshort if it does.

UPDATE:  1:46 PM

Probably not going anywhere, but just in case it drops through, I’ll try shorting here at 2257.04.  It’s relatively rare, maybe 30:70 odds, but once in a while obvious support is set up as a trap door – especially in carefully controlled declines like this.  

ES will need to dip below the purple channel top, probably to 2248.25 if SPX is to reach 2243.14.  That might trigger some stops.  And, the bottom of the channel is getting lower and lower.  If they want to limit it to 2240 with a channel bottom tag, it should happen pretty soon.

UPDATE:  2:53 PM

One possible path…

UPDATE: 3:45 PM

SPX just tagged the .618, meaning we might get a better bounce. Looking at the analog, I’d play along, but revert to short before the close.

This is driven entirely by VIX, by the way.

Note that day 114 in 2007 was very much like today.  A sell off, but not much of one, followed by a big dip on the opening the following day.  The dip gets bought, so it ends up with a gain on the day.

UPDATE:  3:51 PM

And, back to short for the weekend at 22157.92.  Interestingly, VIX has not exceeded its earlier lows.

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BTW, I’ll be taking most of the week off next week — limiting myself to daily updates and catching up on some of the secondary charts I cover. 

 

 

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