Last Friday’s pre-opening forecast worked out very nicely.  I just drew it backwards.

Initial support can be found at the white .618 at 2053.29 and the rising white TL off the Oct 15 lows.  After that, the SMA20/50.  And, in the event it pushes lower, a backtest of the falling white channel (the red S.)

I thought the initial drop would tag the white TL from mid-October, and the close would be at the .618 at 2053.29.  It worked the other way around.

Futures were off 37 points in the wake of the Greek elections, but have recovered virtually all of those losses in the usual overnight USDJPY-driven ramp job.

Another factor weighing on equities: oil.  Crude light tested its previous lows late Friday.  Though it bounced on OPEC General Secretary El-Badri’s comments, it’s still looking rather wobbly.

As such, I see no reason to adjust Friday morning’s chart/forecast: a test of the SMA20/50 — and a potential IH&S right shoulder if those don’t hold.

UPDATE:  10:40 AM

So far, so good on this morning’s forecast.

For those wondering whether or not the lower target will play out…it’s hard to say.  Tell me whether or not USDJPY will break out of its falling channel that goes back to Dec 7.

It’s had three stick saves (on Jan 21, 22 and 25) that also propped up SPX (ES shown below for charting purposes.)

continued for members…

It’s now threatening a breakout for the fifth time since early January.  I suspect this one will also run out of juice, leaving SPX to backtest the rising white channel at around 2053 before heading further south.  But, I don’t have a great deal of confidence in this viewpoint.

I am, however, very confident that if it falters again SPX will not take it well.  And, if USDJPY’s falling channel expands as drawn, then stocks will really take it on the chin.  The pair’s drop from 121.84 to 115.56 produced a 107-pt drop in SPX.

The subsequent drop from 120.82 to 115.84 prompted a 104-pt drop in SPX.  A drop down to the bottom of the falling channel at, say, the yellow .500 at 111.60 could be expected to produce an even greater tumble in stocks — certainly below the SMA200 at 1970.

I’ll spend some time updating the USDJPY chart and see what it might suggest.

UPDATE:  2:50 PM

USDJPY keeps hanging on — testing the same price as first thing this morning.  Note ES’s hopeful thrust higher with each USDJPY push up to 118.48.

SPX is climbing along the underside of the broken channel, still hasn’t pushed up through the white TL.

This is, to say the least, an unstable situation.  It could break either way, and whichever way it breaks is just as likely to be a head fake.

With Durable Goods, Case-Shiller, Consumer Confidence and New Home Sales all due out tomorrow morning, I wouldn’t trust any position overnight — even if the head-fake factor wasn’t so high.  SPX is at our target of 2053.  I’d short here with tight stops — but would strongly recommend cash overnight for those who can’t hedge or watch their position like a hawk overnight.