SPX nailed our downside target yesterday, then turned around and came within pennies of our bounce target.  Today promises to be not quite as easy, as CL has joined VIX in propping up the futures overnight — but, at pivot points where they could break out or break down.

Odds are the 5-pt loss is designed to hold SPX to a backtest in the opening minutes of trading — putting in a floor of sorts.

continued for members…

Going around the horn, CL has reached the top of an expanding wedge…

…while USDJPY is floundering — having broken the rising purple channel but trying to hold its recent gains after yesterday’s backtest.

VIX is following the falling red channel, and is clearly back below the top of the falling white channel — now, up around 11.69 (also the SMA50.)  Note that the SMA200 is now within a penny of the .786 at 13.67.

SPX broke out of the falling purple channel yesterday to tag the SMA5 200, and should try to backtest the channel this morning if it wants to hold the purple and gray channel lines.UPDATE:  9:33 AM

There’s the backtest.  We should get that bounce here at 2370.54. I’d try a long position with tight stops.UPDATE:  9:38 AM

That didn’t take long.  I’d dump the long position here and wait to see if VIX or CL can respond enough to prop up prices.VIX is approaching the red channel top, which might provide a reversal… …and, CL has reversed off the wedge top and a TL connecting recent highs.If VIX can break out, then shorting makes perfect sense.  Likewise, if CL can break out, I’d be happy to go long again.  In the meantime, SPX is stuck, not sure which signal to follow.  That makes two of us…

UPDATE:  10:06 AM

SPX is back to the purple channel top and gray channel bottom to meet the arriving SMA5 10 — all on VIX’s tentative reversal and CL’s bump.  It’s hardly convincing, though, as CL is still below its SMA10 and VIX has yet to dip below its own SMA5 10.

ES has tagged its .786 again, and seems content to wander around below its SMA10 as long as it’s above the white channel top.  Bottom line, cash feels like the best place to be for now.

If SPX breaks above the SMA5 10 as CL is spiking higher or VIX is plunging, I would be happy to go long again.  Conversely, if VIX bounces here and breaks out of the red channel and CL drops through the white TL and SMA20, I’d be happy to short.  I’m going to take a quick break, will be back around 10:30.

UPDATE:  10:23 AM

SPX just popped above the SMA5 10 at 2369.83 as VIX is dumping wildly and CL is bouncing off the white TL.  Signal to go long again.  But, watch out if ES can’t top 2373.25 or CL drops through 53.40.  SPX will now need to clear the  SMA10 at 2372.91 and the SMA5 200 at 2377.57ish.

UPDATE:  10:37 AM

ES has broken the larger TL, needs to break out past the smaller one.  VIX has done the minimum necessary, now must break down through the white TL as CL gets a big bounce.  Otherwise, SPX will never clear 2377 nor ES the TL.

This is an important battle, as a big breakout hangs in the balance: ES’ yellow channel below.  If it can’t maintain the breakout, it’ll probably fall to backtest the 1.618 at 2338.87 or the purple channel (yellow arrow) that it broke out of on Feb 10.  It’s currently around 2311.  Note that ES is barely hanging on to the rising white channel that dates back to the election.

UPDATE:  10:55 AM

SPX and ES are back down to their SMA10s, as CL broke down through the white TL and is likely going to reinforce the rising white channel instead.  It can backtest for a while, though. And, as long as VIX keeps selling off, this bounce should continue to work.  Watch your stops, though — especially if VIX tops 11.34 and SPX dips below its SMA5 10, now around 2372.45.  I need to step away…back in 10.

UPDATE:  11:14 AM

Just got back and see that SPX fell through the SMA5 10.  It and ES are both back below their SMA10s, and VIX broke out past its SMA5 200.  These are not conducive to a bounce.  I’d dump the long position here and try a short if it dips below the SMA5 20 at 2371.48.

UPDATE:  11:24 AM

Back to short at 2371.54.  Tight stops, as the gray channel bottom is just below and VIX has yet to break out.  Euro close coming up in a few minutes…

UPDATE:  11:36 AM

SPX is gathering steam, nearly to this morning’s lows.  Note the white channel top at 2358ish and the 1.272 at 2347.53 — our new targets, assuming SPX can maintain momentum and isn’t hung up on the .886 at 2363.75.  The bounces at the .618 and .886 weren’t very big, or complex.  So, there’s always that possibility.  The .786 bounce lends credence to the 1.272 target at 2347.53.  Obviously, we still need VIX to break out…

UPDATE:  12:42 PM

SPX just slipped back above the SMAs on VIX’s reversal off the red channel top.  I’d step aside here and revert to cash.  Too hinky for my tastes.  If it drops back through the SMA5 10, I’d be right back to short for an expected drop to 2358.96 and, potentially, 2347.50.

UPDATE:  1:11 PM

Last chance for a quick trip to 2358.96.  Obviously, if VIX drops through the white TL, all bets are off.  This was either a clever way of setting up a rebound/breakout or a clever way of delaying SPX’s decline.

UPDATE:  2:31 PM

SPX continues sideways as VIX and CL argue over which way stocks should go.  VIX indicates it’ll break down further, which should boost SPX up and out of the red channel — though it has ignored several opportunities to do so.  CL is testing the rising white channel a fourth time, second time today, hinting at a breakdown that would sink stocks.  

FWIW, ES is unimpressed by either argument and has sketched out a triangle.

UPDATE:  2:55 PM

VIX continues to slip lower and, for now, is having more of an impact on stocks than CL.  Yet, every nudge higher is quickly abandoned.  So, a long series of head fakes…a tug of war over the next steps.  I’d step aside for now and play along on any drop through 2369.20 or sooner, if CL breaks down and VIX pops back up through its TL.

UPDATE:  3:28 PM

Back to short, as VIX suddenly reversed its slow bleed.  There’s a very good chance this is a head fake, as VIX would need to pop above the white TL for it to have a chance at turning into a rout.  It could easily turn out to be just a backtest.  But, it’s been coiling all day, and it’s worth a shot as long as you keep your stops where you’re comfortable.

UPDATE:  3:53 PM

ES just reached its yellow channel top, so I’d go ahead and cover here — even though CL is breaking down and VIX is breaking out.  There is absolutely a good chance of further downside at the close or tomorrow, but I don’t trust VIX’s rebound.

For those tempted to hold short overnight, just make sure you’re comfortable with the gap risk or can hedge.   VIX is still below the white channel top and CL has its API report coming out in 30 minutes.

Revised downside targets and closing VIX/CL. Note that SPX will close below its SMA10 for the first time since Feb 2 — which was the last time SPX tagged the rising purple channel bottom  — currently at 2347-2349 in close proximity to the 1.272 at 2347.53 and our current downside target.

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