SPX dipped slightly lower than our 2055 target yesterday, reversing at 2054.27 before a lackluster bounce that reached 2063 before petering out. From the Dec 5 Update:
With USDJPY overshooting the .618 to tag the channel top and a small scale 2.618, I wouldn’t be surprised to see its rally fizzle here and SPX drop back from 2077 to set up for some of that chop we’re expecting. Any significant downside should be constrained to 2055 — as the SMA20 is about to cross the red TL connecting tops from the past several months.
With the futures currently off nearly 20 points, the red TL is certain to fall this morning. Why? As we mentioned, SPX would continue to hold its channels if USDJPY could hold its rising wedge — which just broke down overnight.
ES is in need of a stick save. And USDJPY has usually obliged. But, China is selling off dramatically at the moment, and there’s a lot of money running for the hills. For Japan, that means money flowing back into the yen which, when it strengthens, sends USDJPY lower and rattles the yen carry trade.
USDJPY has reached a TL of support (purple, below) so we’ll watch to see if it gets a reversal here that allows SPX to bottom out at 2041 (the 1.272). If not, SPX’s next support isn’t until 2031 (1.618) and then the previous high way down at 2019.
Key support levels for USDJPY are the SMA10 at 119.239 and the purple .886 at 118.59. Coming up, expected moves for the next few days.
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