With oil sliding and the USD on the ropes, equities are having a tough time maintaining the exuberance of Friday’s snap-back rally. ES has given up a 7.5 point rise and is trading slightly in the red.

This leaves SPX with an opportunity to extend last week’s slump, but only if currencies cooperate. As we’ve discussed the last few weeks, several pairs are on the cusp of a major move.

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CL has traded back below the red neckline in the large H&S Pattern.

But, of course, the entire pattern could be considered the head of an even larger pattern using the purple channel bottom as the neckline.  If investors continue to focus on fundamentals (perish the thought) we could soon be revisiting the purple channel bottom.EURUSD continues to ride its SMA10 higher, still eyeing a potential .886 tag.

As VIX’s backtest indicates……equities are susceptible to a breakout by USDJPY……which could prop up stocks even in the absence of any real chart pattern or Fib support.  In other words, keep a close eye on USDJPY as we wait to see if our 2400-2403 target has a chance of playing out. The rally prevented, at least for now, the small H&S Pattern targeting 2384 from playing out.  Had the rally not occurred, we would likely have seen at least a tag on the neckline of another small H&S whose neckline is the bottom of the shallow white channel shown below.I still believe we’ll get to 2400-2403, as EURUSD, DX and CL all support it.  But, USDJPY remains the potential spoiler.

UPDATE:  10:54 AM

Algo time, again.  CL just topped the SMA20, even if only briefly.  It was enough to push SPX up above its SMA10.  I’d ditch the SPX short on any sustained move above the SMA10, and reshort it on any drop back through it.  I’d want to go long only if SPX can break past the TL off the Jun 26 highs, right about 2430. VIX, rejected at the white channel bottom, is slipping below fan line support.And, USDJPY, which briefly sold off below its SMA5 200, is back on top and threatening new highs. I’m taking a quick break, will be back at 11:15.

UPDATE:  11:18 AM

BTW, here’s why you’d want to be long above 2430, if the breakout occurs: an IH&S targeting 2466.UPDATE: 2:15 PM

It has now taken a 9.6% smackdown in VIX from this morning’s highs for it to produce a 0.25% increase in SPX.  Are the algos losing interest in VIX manipulation?

UPDATE: 2:31 PM

While SPX has clearly constructed a rising wedge, I suspect they’ll try to prop it up at the white TL — a “breakout.”  Traders could try shorting here, but be prepared for support to come in at 2429ish.