SPX overshot Friday’s initial downside target of the SMA20/SMA50 levels, but bounced back to the SMA10 as expected just prior to the close.

USDJPY continues to bounce around south of the key .618, and fell right to the purple .886 at Friday’s close.  It dipped below yesterday, but bounced back above overnight.

Last night’s high helped legitimize the falling red channel, but it must still be taken with a grain of salt.  As sloppy as it looks, we’ve seen too many bounces back into the rising white channel to discard that bullish trend just yet.

And, though DX looks like it’s pulling back here, I can find no concrete chart pattern to serve as a ceiling at this price level.

In fact, EURUSD looks like it has further to fall.

And, that’s the big question, isn’t it?  Whether or not the ECB will finally begin QE in earnest.  They’ve certainly talked it to death, and the MSM has dutifully reported even unsourced rumors as fact — much to the algo-driven markets’ delight.

We won’t know until the 22nd.  And, since nothing else matters near as much as what central banks might or might not do, we should continue to see this pattern of consolidation continue.

Targets coming up…

UPDATE: 10:00AM

As I was generating a chart reiterating our second downside target from Friday, SPX just plunged to reach it.

From Friday’s 10:00AM post:

Our 2046 target and the most interesting looking channel are seemingly at odds.  Perhaps a bounce at the SMAs and sideways for a while — ping ponging with the SMA10?  We’ll see.  One strong scenario would be a dip to the target we mentioned yesterday: the gap at 2029.61.  It’s roughly the purple .382 and would be a nice head fake.

We’ll find out shortly whether or not it’s a head fake.  I suspect SPX might be in for a tag of the .618 at 2019, but the gap is closed.  So, we could get a bounce at any time.

USDJPY plunged quickly, but is holding above the recent lows.  If it bounces off those lows, SPX should bounce up and backtest the moving averages (2045ish) at least.  If it continues to flesh out the falling red channel…look out below.

continued for members…

I think USDJPY is stuck.  I think TPTB have probably reached a limit on further yen decimation, and are trying to hold it in a range of 115-120 in order to prevent further SPX declines. The correlation is as strong as ever, as seen in the chart below.

If a floor can be established until the ECB begins QE — then, all is well.  SPX will be propped up.  If the floor gives way, SPX should go down and test the SMA200 (currently 1962) as we discussed last week.  Though, we have to consider the SMA100 at 2007 as interim support — intersecting as it does with the white .786.

The big “what if” however, is what happens if (I lean towards “when”) the ECB can’t step up to the plate.  Without a new carry trade to keep stocks afloat, the potential downside is very significant.