SPX had every opportunity to sell off more yesterday, perhaps to the 20-day moving average (below, in white.)  But, as we expected, it was important for the index to close above the trend line connecting the previous tops.

As such, it was able to treat what was otherwise a bearish day as a bullish achievement: a successful backtest of that trend line.

What saved it?  USDJPY, of course.   As discussed last week, USDJPY and VIX will be the keys to maintaining prices through year’s end.  And, USDJPY took a big step closer to the .618 we’ve had our eyes on for several weeks.

It’s a little tricky, because DX has already tagged the major .886 Fib level 4 times — but without much of a reaction.  Dollar weakness = USDJPY weakness = stock weakness, and we can’t have that (at least until the end of the year.) So, look for the dollar and USDJPY to tread water, spiking when stocks need the boost and settling back down when the dust settles.

VIX backed off, but not all the way to the broken TL connecting recent bottoms as expected.  As a result, it’s in a chart pattern no man’s land — either reversing or taking a break from a continuing downtrend.

Unless the architects of this melt up have tired of achieving their goals day in and day out, we will see the index back down below that TL before too long.

And, SPX, because it needs to kill some time before tagging 2138, will probably take another swipe at the SMA20 (currently 2047ish) — especially as it’s gaining nearly 2 points per day.

UPDATE:  1:52 PM

SPX just reached the .618 retracement of its drop from 2075, coinciding with VIX’s tag of the broken trend line discussed above.  We should see a reversal here at 2065.97.  I’ll be watching to see whether SPX manages to remain in the rising purple channel it has regained.  VIX will probably drop back below the TL, but I don’t see it making a major move just yet — probably later in the month.  For now, it will most likely hold 13.

The wild card is our old friend USDJPY which, if it stays north of 118.59, will lever stocks higher regardless of VIX and Fib levels.  As of this moment, it’s creeping higher…

…thanks to the boost DX is getting from higher interest rates…

…which reversed nicely off our intermediate target yesterday.