Stocks topped out just north of our 2102.49 target on Wednesday [see: Mar 17 CIW] and spent most of Thursday backfilling and testing the SMA20.Since USDJPY is back above the critical .618 Fib at 120.11, we’re meant to believe it is breaking out yet again (despite Paul Tudor Jones’ warning.)  But, as we point out in yesterday’s Update on USDJPY, this is the fifth time above 120.11 since December.

Four of the previous times sent stocks reeling when USDJPY wasn’t able to break out:

1.  a 107-pt drop from 2079 to 1972 in seven sessions.
2.  fell 101 points in five sessions (and, marginally lower over the next two weeks)
3.  gained 52-pts (on oil’s bounce) but tumbled as USDJPY failed a second try
4.  a 30-pt slide on USDJPY’s pullback from the Fib and the red, dashed TL
5.  a 64-pt drop (when oil’s bounce failed)

Wednesday’s CL, USDJPY and DX takedown was discussed extensively in Algos Gone Wild.  It analyzes beat for beat the means by which the markets have been manipulated higher over the past three months through a combination of moves that supports the yen carry trade.

It has been very effective and won’t stop working until USDJPY fails to hold 120.11, oil tumbles much further, or the dollar reverses sharply.  And, when the carry trade falters, there’s always the overnight ES ramp job, VIX manipulation, bond futures manipulation, etc.

Last night, it was the DAX breaking through resistance combined with a nice bounce in oil that enabled ES to rally 14 points.  It’s backing off now, as that same oil bounce is causing DX to plummet, thus dinging USDJPY.

It’s the same set of circumstances that led to Wednesday afternoon’s turmoil.  It’ll be interesting to see how TPTB handles it today with CL clearly breaking above a two-week TL and the resultant hit to DX and USDJPY.

Stock bulls will see this as bullish, even though it runs counter to the Fed’s objectives and will require corrective action that could undo SPX’s rally.  One possible way would be to take EURUSD down, potentially strengthening DX without as much impact on USDJPY.

The less elegant, but often used, method is to wait until after the cash close.  Of course, this being a quad-witching day and with the futures already up so big, all they have to do is hold the opening spike.  We’ll have to wait and see.

Overhead resistance is at 2102.49 today.  If SPX breaks through, our next upside targets remain intact.

continued for members…Recall from the Mar 17 Charts I’m Watching:

Assuming SPX can get past the SMA20, the midline also intersects with the broken purple channel bottom for a backtest Thursday morning at the red .786 (or next Tuesday the 24th at the .886 at 2110.48.)

I could be wrong (and, probably am since it would be bearish for stocks) but it appears that USDJPY might be revisiting 120.11 in the near future.  Taking advantage of CL’s strength to put in another backtest?

If SPX — which has tested but hasn’t broken through 2102.49 yet — can hold its gains on CL’s strength while USDJPY pops down and bounces off 120.11, then USDJPY can take the reins while CL resets.  Kind of a “heads I win, tails you lose” for bulls.

UPDATE:  10:30 AM

VIX is making a move…

UPDATE:  10:40 AM

VIX just tagged the purple channel bottom, enabling SPX to top 2107.  It could always double bottom, but I don’t see the falling white channel continuing to hold.  I’ll gray it out and try a new white one that fits pretty well.

Just thinking out loud here… but, having now established a higher high, SPX could retreat here just shy of 2010 and save the .886 for Monday (on  New Homes Sales data?) when it’s a slightly better fit.

That would enable USDJPY and CL to both reset and be ready to support it next week.

If SPX gets anywhere near 2110 I’d take the money and run. It seems to me that 2138 probably isn’t going to happen until around Mar 31.  That’s assuming we don’t get more chop like the past three months — which is a real possibility.

The SMA200, currently at 2006.72, will reach the white .786 (2010.58) in the next few days.  And, it could reach the white .618 at 2033 in mid-April, when the .618 intersects with the broken falling gray channels top.  In all, not a great weekend to consider holding a trade.

Gotta sign off for now, will try to check in again in a few hours.  One last chart before I go…

GLTA.