CL is on the verge of rolling over, even as the ramp in USDJPY that helped prop up markets on Thursday and Friday is settling back for at least a backtest. 
The net result is that we’re finally getting some follow-though to the sell off we anticipated last week.
Futures are currently off about 8 points, after selling off as much as 10 points overnight. Our downside targets remain essentially unchanged.
continued for members…
USDJPY’s backtest could be limited to the SMA10 at 114.04, though the channel itself is more like 113.80. If it tumbles back into the falling white channel – watch out! The next support wouldn’t come until 112, 109.92 and 107.86. The SMA200 is way down at 107.23.
CL’s SMA10 (52.86) is barely above the SMA20 at 52.81. I expect the tumble to start any time, now, with a moving average cross being the first actual signal.
VIX has overhead resistance at 12.49, where a TL connects the recent highs, and our expected upside remains the .786 or .886 at 13.74-14.18.
A reminder: we have a gap that needs closing at 2284.63, and the SMA10 has moved up to 2278.44. Our next target remains the .618 at 2273.82.
The falling red channel that ES was so careful to preserve on Friday has expanded as expected. Now, the rising white TL can come in to play (or not.) ES SMA10 is at 2274.88, wish is relatively slightly higher than SPX’s at 2278.44.
We have a very busy week, data-wise, and of course the BoJ and FOMC announcements.
German inflation came in this morning at 1.9%, led by a 5.8% surge in energy prices. The US will report a similar result on Feb 15, though it’ll be well into the 2’s after last month’s 2.1%. As has been our central thesis for several months, this will necessitate a decline in energy prices, which will reflect negatively on stocks.
It remains to be seen whether VIX and USDJPY manipulation will be enough to offset it.
UPDATE: 9:45 AM
SPX and ES just plunged through their SMA10s on CL’s plunge through SMA10/20 support. SPX’s .618 should be next up at 2273.82, though ES’ is only slightly below at 2270.
I will be traveling today, so will have to sign off shortly. If the .618 doesn’t hold at 2273.82, we have some very interesting lower targets.
UPDATE: 9:52 AM
There’s the .618, or close enough, anyway. I’d cover here at 2274.77, and take a wait and see approach regarding lower to, say, the SMA20 at 2271.53. SPX is off about 20 points, which is enough that we should expect TPTB to stomp on the brakes and produce a bounce. The key level to watch is now the resistance at the SMA10 at 2278.44.
As I was saying before…if the .618 breaks down, then the white .886 at 2262.04 looks interesting. It was also a 1.618 to the upside before, and would allow a backtest of the falling red channel from Dec 12.
Note that we’ve tagged an internal TL, also an IH&S neckline, from the 1/6 highs. I’ve marked it below with a yellow arrow. This could prove to be strong support. But, if it breaks down then, again, a backtest of the red channel at 2262 (the red dot) looks promising. And, if things go to hell, then the purple channel midline, now up to 2229.80, looks interesting.
Bottom line, I’d want to be short again on any drop through the .618, but would look for a bounce again around 2262. A drop through 2262, and I’d want to be short all over again.
UPDATE: 10:48 AM
One last set of charts before I get on the road. SPX has broken back below the .618, triggering another short positions. Note that VIX is nudging above the TL, even as USDJPY tags the channel backtest and CL continues its weakness. I’d keep a close eye on USDJPY for signs of a bounce, and VIX for signs of a beat down. But, as long as SPX remains below 2273.82 — the .618 and white neckline — your stance should be short. Remember the potential bounce at 2262 and it should be a profitable day. GLTA.
