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.
continued for members…
Remember, the primary tools for boosting SPX higher are USDJPY, EURUSD, DX, ZN and VIX. Our targets from Dec 3:
USDJPY , which already reached our target, lost its footing this morning but should bounce back to the wedge bottom after back-testing the purple .886 at 118.59 and testing the SMA20. From there, I’m looking for at least a sideways move, perhaps transforming the wedge to a rising channel (neutral to bullish.)
EURUSD tagged our target yesterday, but should remain under pressure due to the SMA20 just above at 1.2437 (neutral to bullish.)
DX should backtest its .886 at 88.477 and see further strength to 90.272 (bullish.)
ZN should sell off to at least the SMA100 at 125’030 as TNX rebounds from the TL connecting the Oct 15 and Dec 1 lows (neutral to bullish.)
VIX shot back above the purple channel bottom, but is a loose cannon — forming a megaphone pattern over the past month. Look for it to drop back below, and approach 10.28 when needed to overcome resistance.
While the drop over the past two days was a bit unnerving, it fits with our expectation of a great deal of chop. Provided the tools mentioned above can remain in play, as I believe they will, SPX should still close at or near 2138-2142 around year-end.
The first challenge is to get back above the red TL and regain the rising channel. It should be the next move after SPX bottoms out this morning, and will probably present itself as a backtest initially.
UPDATE: 1:45 PM
SPX nearly reached the 1.618 at 2131, bouncing at 2134 as USDJPY backtested the .886 as detailed above.
It rebounded 23 points and is backtesting the red TL as expected. This would normally be a negative development — setting up further losses. But, a push back above the red TL is more likely — either later today or tomorrow.
Should it fail to retake the TL, then we will see much more weakness — probably to 2131 or 2019. This becomes the most likely case if USDJPY falls further after backtesting the purple rising wedge bottom.
