Yesterday played out very much as planned, with SPX coming within 2 points of our downside target before crude light’s rebound spoiled the bears’ fun.

Recall that we were looking for CL to reverse at 56.78 — the purple .786 — when the cash market opened.  And, that’s exactly what happened.

This nearly 4% bounce off its lows provided all the ammunition SPX needed to abort a full backtest of the IH&S neckline and SMA20 and nearly close in the green.It was a near repeat of Tuesday’s plunge which also came up short.  The eminis are currently off 4 points, but were down as much as 10 points overnight before the euronext “broke” — which is code for “let’s turn this puppy around, but fast!”

Then economic elephant barging into the algos’ room today is the BEA report that the economy contracted 0.7% in Q1.  From Briefing.com:

As Briefing.com points out, the 1.1% decline in retail sales is the biggest quarterly drop since the Great Recession.  Then, thanks to the dollar’s lofty levels, there’s the continuing plunge in exports…

Given all the above, we’re left to wonder whether SPX can defy week-end and month-end convention of a stirring display of all-is-well-ism and follow through to the downside.

As usual, USDJPY holds the key.   continued for members…Note that while it reacted fairly strongly at yesterday’s target, it has yet to follow through with an actual downturn.  If it does, 2110 should be no problem.But, keep an eye on EURUSD which has now put in three days of modest but solid bounce since tagging our interim target on Tuesday.  Every little bit helps.Bottom line, I think our target is still intact.  But, don’t be surprised if there’s a strong bounce into the close.

UPDATE:  10:07 AM

So far, so good.  Note I’ve sketched in a channel, shown below in purple, which has done a decent job of capturing the bottom of each sell-off.  It suggests that if the current sell-off continues past today, we’ll likely see 2075-2082 before it’s all over.

UPDATE:  2:23 PM

CL to the rescue…up 7.4% in two days since bottoming at our target.  Sometimes, it’s no fun whatsoever to be right with a forecast.

The SMA200 has passed through the .618 from February — let alone any other significant lows (Dec, Oct, etc.)  The current trajectory should take it to the purple .500 in mid-June — which has been a pretty good cyclical low in some years past.

We’ll put a target there just for grins; but, at this rate the more likely low is 2082 or 2075 if it dips below 2100.  As always, keep an eye on CL and USDJPY.

SPX is now down about 8 points, about 4 points off the lows.  I’d be looking for CL to backtest its broken red TL and give SPX a chance to settle lower with either a real or fakeout sell-off prior to or into the close.  Also, watch ES, which needs a tag at 2093.44 for a bounce.

Traders should be safe staying short over the weekend, but there’s an incredible amount of headline risk to a short position.  Just a rumor that Greece is “fixed” is enough to wipe out any gains.  So, as always, hold that position only if you can hedge or stay on top of it.

I have to hit the road for a track meet with my youngest, so I’ll sign off now.   Have a great weekend everyone.