Charts I’m Watching: Dec 28, 2016

This is the time of year when charts get downright silly. Stock prices, which are highly susceptible to algo-linked manipulation anyway, are completely under control in this low-volume environment.

A casual glance at the USDJPY chart bears this out. It’s nothing but a series of breakdowns which morphed into breakouts. The only saving grace of such an environment is that it sets several juicy trading opportunities for the new year.While indices never dipped appreciably as they might have in the middle of the month, our upside target remains unchanged and our analog remains on track.

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VIX probably takes the prize for the most bizarre series of unmotivated, yet convenient, moves.CL isn’t far behind. ES has broken support, so we’ll look to short on the opening…

…even if SPX has its SMA10 for support just below.

As discussed many times, these last few days of 2016 are dedicated solely to maintaining the year’s gains. Whether or not it results in new highs after the New Year is less important than what happens after they turn the algos off.

SPX has repeatedly dipped below the SMA10, only to be propped back up again. Today, that suggests a backtest of the latest broken channel (in red, below) at 2263.72.

Admittedly, a more legitimate pattern would be a flag — a continuation pattern that offers the same potential outcomes: sideways or an eventual breakout.

If we strip away the various chart patterns, we can see that SPX has already broken the most basic trend line since the election. Its recoveries from dips below the SMA10 were quite strong. If our 2295 target holds up, it will be as a backtest.

UPDATE: 9:57 AM

SPX has dropped through the SMA10, which means it’s probably headed for the red midline at 2260. I’d be surprised if it makes it all the way to the purple channel bottom down at 2248. More likely, this is another head fake that will resolve in a strong rally — perhaps over the weekend.

UPDATE: 10:04 AM

This should be a good entry for a long position: clearly defined support and backed up by ES. Stops should be tight on this one.

Note that ES has found TL support which, if it doesn’t hold, suggests a backtest on the rising purple channel that was broken out of back on Dec 7. It’s currently at the SMA20 at 2243ish.

UPDATE: 10:17 AM

RUT is also testing support, along with ES and SPX. A drop through 1368.78 would likely have repercussions for SPX as well. If SPX is going to bounce, we should see VIX smacked back down below the SMA20 at 12.33 and CL continue rising. Note that USDJPY has already found support.

UPDATE: 10:57 AM

RUT is breaking down, which means SPX might not be far behind. So far, VIX isn’t helping, USDJPY has already made its move, and CL is struggling. Watch your stops. If we’re going to get an algo-driven bounce here, it’ll come as soon as the SMA5 20 arrives on the scene.

UPDATE: 12:03 PM

SPX breaking down…signal to short. It was prompted by USDJPY and CL both breaking trend. ES’ support at 2243 is the strongest near-by support — the equivalent of 2250-2251 in SPX. If that doesn’t hold, the bottom of SPX’s flag is about 2246. The greatest risk in shorting here is VIX, which has overhead channel resistance at 12.65-12.71. If it breaks out of that channel, then things start to get interesting…

Note that RUT has backtested the broken purple TL. 1363.13 is the next level of support, followed by 1353.99 and 1340.90.

UPDATE: 1:38 PM

USDJPY is falling apart here, so it’s CL and VIX to the rescue. This could be the end of the downside, as SMA5 20 has caught down to SPX and they might try to force it up over at this point. Recommend tightening up your stops. ES’ SMA20 is now 2241.73 (intraday), which is about 2247.20 in SPX terms. Of course, that puts SPX very close to the purple channel bottom (discussed above) at 2248. It would be a coup if the bulls could hold SPX to 2248ish, where they will have fleshed out the rising purple channel without a significant decline.

UPDATE: 2:30 PM

Got to 2250.14, which is pretty close. CL has midline support here, and USDJPY is also getting a bounce. VIX broke out, but is faltering. Could be all we get.

UPDATE: 2:53 PM

USDJPY getting a nice bounce here. Watching VIX and CL for confirmation. CL has broken down below the midline and SMA5 200. But, DX bounced at its. VIX is still broken out.

ES’ SMA20 has slipped a little further. Remember, it can tag it after hours. So, I’d not focus too much on an exact tag. CL and VIX are usually better indicators of when the bounce might arrive.

UPDATE: 3:03 PM

CL is bouncing now, too. And, VIX is breaking down. Probably time to call it a day on the short.

The only thing still going for bears is that CL is backtesting its midline, SMA5 200 and SMA5 10. If it reverses here, SPX has more downside no matter what VIX and USDJPY do.

UPDATE: 3:22 PM

Guess I’ll make it official. This seems like a good place to cover, given that SPX is back on top of its SMA5 10 and 20 and VIX is breaking down.

UPDATE: 3:27 PM

Faked me out…as USDJPY is dropping and NKD along with. Back to short, hopefully for another 5 points or so. Remember, horizontal support at 2248.44 and the flag bottom at 2246ish.

For those wondering, this is predatory algo action — designed to catch traders on the wrong side based on the usual indicators. Pretty tricky stuff. CL suddenly breaking down…

Will it definitely bump higher tomorrow? Hard to say. But, as discussed earlier, the past dips below the SMA10 have all be bought the following day. We have API inventory coming out after the close, so CL could see some wild swings. EIA is tomorrow – also delayed by a day due to the holidays.

As I type this, VIX is getting wacked again — and USDJPY is rallying. The odds are it’ll be higher this time tomorrow — whether or not we get a lower low on this backtest of the falling purple wedge. But, I’d be very cautious about leaving big bets on either side of the ledger overnight.