Oil bounced where we expected it to.  From yesterday’s post:

CL…has found strong support at: (1) the bottom of the purple channel we suggested several days ago; and, (2) a combination of Fib levels including the white .786, the purple .382 and red .618.  If [it] gets a strong bounce at 50, SPX’s downside could easily be limited to the red 1.272 at 2087.39.

In fact, oil’s bounce was so dramatic, SPX only reached 2090 before getting the boost.

USDJPY also bounced — at the red pennant top.

But, they both settled back down overnight — which is why the S&P futures are currently trading off about 5-6 points.

continued for members…

Given that both are backtesting, the odds of SPX gathering enough momentum to reach the red target have dropped dramatically.  Instead, it looks more likely we’ll get a drop to 2093.55, the intersection of the white channel bottom and the former high.

If that fails, the yellow target at 2087.39 is still very legit. But, of course, that would mean a departure from a very carefully constructed channel.  Given that it’s OPEX, that would probably be a head-fake — with the usual V-shaped rally following close behind.

But, keep an eye on CL, because the reversal at the purple .236 channel line could take prices back down to the channel bottom in a .786 retrace — enough to send stocks scurrying for cover.  Ditto for USDJPY.

The headlines re Greece are all over the map.  So, at any given time, there’s the risk of a quick and sizable drop or pop.

UPDATE:  12:00 PM

CL recovered early — before tagging the purple channel bottom or the .618.

And, USDJPY popped back above the red pennant top.

This provided a backtest for SPX.  I’d have more confidence in its bearish potential if it weren’t OPEX.  Since it is, there’s a good possibility that the next wave lower doesn’t come until Monday.

Let’s keep an eye on VIX, which is about to close the gap from earlier this morning at 15.38. If it’s hammered any lower, SPX should fully recover.  Othewise, we could see at least the start of the journey towards the red target.

It is definitely back in focus, but it’s unusual to see a sell off in the final hours of OPEX Friday.  Putting it off until Monday would allow it to coincide with the midline of the purple channel I’ve sketched in.  This would allow for the rally to “tilt” without being derailed — and, for the additional support that comes from a solid backtest.

UPDATE:  2:00 PM

As discussed above, VIX got hammered and collapsed through 15.38 — now at 14.78 and still leaking lower.  SPX bounced higher and is now pushing through not only the red channel top but the white channel bottom as well.

I don’t know which Greek news blurb to believe, so I’d go ahead and take profits here at 2107.  Might well be leaving money on the table, but I’d rather pocket the 20-pt profit than risk giving it back later.