CL’s rebound since our Feb 11 bottom call [see: USDJPY Finally Relents] has been nothing short of spectacular.  It’s not surprising that it has brought SPX all the way to the bottom of our target range a little ahead of schedule.  As we noted in last week’s forecast update, our 2050 upside target raised a few eyebrows when we first posted it on Feb 26 [see: Cornered Bankers Resort to Ramping.]

Now that we’re here, we have to wonder if CL has the legs to take it further.  If it pauses here at the white .618, how will TPTB get SPX over the hump?

continued for members…

Fortunately for them, CL’s rise has obscured very lackluster performance by USDJPY — which is now ready to rebound off its new floor — the one it first established on Feb 11. SPX is long overdue for some meaningful backtesting.  But, the smart move for those manipulating the “market” higher would be to get it over the channel top first.  Since CL is bumping up against the SMA200 and that potentially meaningful Fib, it’ll probably fall of USDJPY to rebound up to or over 113 — the bottom of the rising purple channel from 2011.While the white .786 would, under normal circumstances, provide a nice reversal, they yellow Fibs were the ones that provided the most meaningful reversal since the 1810 bottom: namely, the yellow .618 at 2010.72.  Therefore, I’ll go out on a limb and select the yellow .786 as the more important pivot.If TPTB play nicely and constrain SPX to the rising red channel, it won’t happen until at least Wednesday.  If they want to engineer an intraday spike, it could happen as early as today.

A nice head fake would be a backtest of the SMA5 200 when it reaches the yellow .707 at 2039.61 — now that OPEX is in the rear view mirror.

In any case, we can probably expect it to involve an overnight ramp job that produces a surprise jump in prices a la CL’s gap up past resistance last week.There are a couple of ways to play this.  Swing traders who don’t mind holding overnight could put on a long position on the next SMA5 100 tag — probably at 2039 or the red wedge bottom — assuming it catches between here and there.  If you take a longer view still, a long position here would probably work out, though you risk sizable overnight drops designed to shake out the weak bulls.

Remember, the SMA100 is way down at 1998.  While I certainly don’t expect it, a 50-pt drop isn’t out of the question.  Even a backtest of the SMA200 at 2017.92 would catch weak bulls off guard.

A middle ground would be to concede the overnight stuff and just play the breakout past 2050.91 or the breakdown from the SMA5 100 — currently about 2047.50.

UPDATE: 10:10 AM

There’s the breakdown through the SMA5 100.  Traders might wish to short here for 2039.61.UPDATE:  10:26 AM

For traders who missed the first drop through the SMA5 100, you should get another chance here on the SMA5 100 and SMA5 10 backtest (also, your stop.) It’s not a big drop — maybe 7 points — but, it’s playable.If the .707 doesn’t hold, the next support is the rising red wedge bottom currently around 2035, followed by the purple 1.618 at 2031.93.

There’s just enough time to reach 2032-2034 without damaging the wedge too much if they hurry.If it really gets going, here’s the motivation: a drop through short-term TL support in CL.  A gap close down to 38.63ish is clearly overdue.  It would also constitute a backtest of the daily SMA10 now at 38.67.UPDATE:  11:06 AM

Apparently, the thought of a 10 point drop was too much for them.  CL is ramping, which should push SPX back though the neckline.  I’d dump the short here and move to the sidelines. I assume it’ll move back up to the SMA5 20 and either reverse there or bump along throughout the day and gap tomorrow morning.  While I’d ordinarily be content to follow along and try to pick off a few points here or there, I didn’t get home from the airport until almost 2am this morning.

So, I’ll leave you with the 2032-2034 downside target (short if it reverses off the neckline or the SMA5 20) and the usual admonition to watch USDJPY and CL — because 2065 will probably be here soon.  Needless to say, a push back above 2050.91 should be bought with reasonable (for you) trailing stops.

I’ll check back in a couple of hours.

UPDATE:  3:30 PM

SPX is breaking below the .786, so there’s a possibility of a selloff in the last half hour.  Anyone’s guess whether or not it will, as today has been entirely machine driven.  The SMA5 200 is a good bet, but it’s only 5 points below at 2046.77.   Better to just go to cash here unless you plan on holding long overnight  — which I would only do if you can hedge or monitor it closely.