Lots going on this morning…with the key chart being the breakdown in the USD, which is approaching our target from May 1.Our downside targets from yesterday remain in force, and we remain short.

continued for members…

Assuming SPX drops back below the yellow channel top, the next most interesting target is horizontal support at 2381.74, followed by the red 1.272 at 2375.2.

Note that USDJPY’s breakout has failed and it is closing in on SMA support, with the better support being the SMA200 at 109.67 and the white channel bottom/.618 combo at 107.86.VIX is closing in on its SMA200, also the purple channel top.And, CL is ramping back towards the SMA200 and white channel bottom.UPDATE:  9:32 AM

I’d cover here at horizontal support, as VIX has nearly reached the SMA200 — strong overhead resistance.  It might hold it, and it might not.  But, TPTB have always been serious about holding the yellow channel top in the past.  I would expect them to pull out all the stops here, too.   If it drops back through 2381.74, we can always re-short for the 1.272/.382 combo at 2375.I think they’ll also be strongly supportive of ES at 2381.50ish — the neckline of a H&S Pattern that targets 2353.75.

SPX has no equivalent pattern since it made new highs that exceeded its potential  2403.87 head on Tuesday.  Right shoulders are not allowed to exceed the head.

UPDATE:  9:50 AM

Back to short here with tight stops.  There’s no harmonic pattern that targets the 1.272, but I find that overshoots often terminate there anyway.  I’d look for a quick reversal there to meet the SMA5 10 as it reached the yellow channel top or dashed, red TL (what would have been a neckline if the H&S hadn’t been busted on Tuesday.) UPDATE:  10:03 AM

I’d cover here and take a tentative long position with very tight stops.I’d revert to short on any drop through the purple channel bottom (2373.80ish) accompanied by a pop by VIX through the SMA200.The .618 and SMA50 are interesting targets, but I’d expect a bounce between here and there that tags the red TL or yellow channel top — or at least the falling SMA5 10.

A question was raised in the comments about XIV…  Note that I updated my stance in yesterday’s initial post:

“XIV has topped out at 82.55 unless VIX can push below the SMA10 and tag the purple channel bottom.”While VIX dropped through the SMA10 intraday, it bounced back above it by the close and never tagged the purple channel bottom.  If XIV fails to hold the SMA10 at 79.45, I think there’s an excellent chance that it will test the bottom of a larger channel that intersects with the SMA100 around 67.

UPDATE:  10:22 AM

Remember, we have an EIA crude inventory report coming out at 10:30.  CL is not acting all that optimistically at the moment, but these things are often accompanied by algo-driving machine buying.  And, DXY is approaching potential support at 97.583.

Given the unsteady state of affairs this morning, I wouldn’t be surprised to see it pop up to or beyond the SMA200 at 49.28 just because, even if it’s just intraday.On the other hand, a report that echoes yesterday’s API build could easily drive SPX down to the 2369-2370.

This is a very good time to keep your stops close and keep a very close eye on CL and VIX — which is back to the SMA200.

UPDATE:  10:33 AM

It’s highly unusual, but EIA’s report just came in more positive than API’s.

CL is back above the SMA200 and SPX is getting a very slight bounce.  But, VIX is still nudging above the SMA200, so I’d not be surprised to see SPX drop to 2369-2370.  Watch your stops.

UPDATE:  10:38 AM

Back to short with tight stops, as VIX is pushing higher and CL can’t seem to compensate enough. UPDATE:  10:44 AM

I think that was a head fake.  Back to cash here (long for nimble scalpers) until things settle down.  DXY has reached our 97.583 target.  But, remember, I’m looking for 96.789 on DXY, 1.1189 on EURUSD and 109.67 in USDJPY.  In other words, another leg down looks pretty likely according to the currency picture. 

The question is whether or not we’ll get a bounce first.  The SMA5 20 has dropped through the red TL without being tagged, meaning that it could easily serve as fuel for a leg down instead of a magnet for a bounce. UPDATE:  10:50 AM

Back to short here for an 11:00 tag of 2369-2370.  VIX is edging higher and DXY is not bouncing at all.  If SPX should drop through 2369.36, the next support is the 1.618 at 2366.89, followed by the .618 at 2357.68.  With VIX solidly above its SMA200, now, the next most likely target is the .618 at 13.71. Eagle eyes might remember 2357.68.  It was the backtest target for the yellow TL last week before SPX decided to break out of the falling purple channel.UPDATE:  11:04 PM

VIX tagged the .618 and is reversing a bit.  SPX should bounce at least a little, even as DXY continues to settle lower.  I’d cover on any sustained push above the SMA50.  I need to take a 5-10 minute break, will be back asap. UPDATE:  11:35 AM

SPX popped up above the SMA50, but ran into resistance at the falling SMA5 20.  Now, however, it is finding support on the SMA5 10 as VIX continues to settle toward the SMA200.  It could bounce further, here, so I’d be comfortable staying in cash until we get a clearer signs.  If VIX can drop back through its SMA200, then I’d be happy to look at going long, again.  And, if SPX can drop back through the SMA5 10 and 20, I’d be happy to re-short. UPDATE:  12:09 PM

I’ve adjusted the downward facing Fib grid to account for yesterday’s new highs and see that the .618 and yellow TL intersect at 2354.15 tomorrow morning.  I’ll make this my new swing target, provided SPX can drop back through its SMA5 10 and 20.  VIX is bouncing, and CL has dropped back through its SMA200, and USDJPY is still listing.  So, I’d take a short position here in anticipation of another leg down. ES seems to concur.UPDATE:  12:46 PM

SPX is back above the SMA5 10 and 20 again — this, as VIX reversed below its earlier high and has an approaching SMA5 10.  Keep a close eye on your stops, particularly if VIX plunges below the SMA5 10.  For nimble and/or nervous traders, this might be a good time to go to cash — pending a drop through the SMAs.

UPDATE:  1:08 PM

Yep, it’s turning into one of those days…  At least we have a clear line in the sand to help guide the next short.UPDATE:  1:25 PM

It’s getting impossible to ignore USDJPY’s melt down.  Back to short for those who weren’t holding. Note that DX is breaking down and EURUSD has pushed past its gray .618 I mentioned as potential resistance.UPDATE:  2:53 PM

We’re coming up on the .618 at 2354.15 — also the yellow TL backtest target.  DX has not dropped any further in the last hour or so, so this is mostly USDJPY dropping and VIX escalation.  VIX, however, has nearly reached the white channel midline.  So, we could be facing a bounce right here.

I’d take profits or at least tighten up stops here, as SPX’s 2354.15 target makes more sense coming tomorrow instead of today.  Any further drop through 2360, of course, and I’d want to be short for 2354.15.  Ditto for VIx popping through 14.57 or DXY dropping through 97.48.I have to run a quick errand, so will be out of the office until 3:30 or so.

UPDATE:  3:43 PM

Might be a head fake, but SPX is making another run for 2354.15.  I’d try re-shorting here.  These days that end on a bearish note are almost always “fixed” overnight.  But, not always.  As such, if we reach a good bounce spot such as the yellow TL or the .618 itself, I’d only go long and hold overnight if you can hedge or handle the very significant overnight gap risk.  There probably won’t be time to write that in the last few minutes of the session.Even though the USD pairs have further to go, that can happen after SPX closes — stranding those who were counting on a little more downside or, alternatively, on a bounce.  In fact, if those currency moves do pan out as expected, they’re almost certain to happen overnight when they won’t cause further panic. UPDATE:  3:59 PM

Covering the short here (and reverting to long for all the daredevils out there — see the warnings above.)UPDATE:  13:24 PM

We came up a little bit short of the .618 and yellow TL.  Currencies could go on and tag their targets overnight, which would allow them to avoid impacting equities, or they could wait until the morning when SPX could use a slight nudge lower.

I suspect they’ll split the difference, making most of the move fairly quickly and being in a position to rebound strongly in order to prevent too much follow through in equities in the morning.  But, we’ll see.  More charts coming up shortly…