SPX nailed our initial downside target yesterday (in yellow below) before USDJPY and CL bounced just enough to stave off any further drops. In all, it was a 33-pt reversal that the pundits laid at the feet of the trade deficit report — which certainly got the few remaining fundamental investors off the mark.
The algos and technical types were no doubt unnerved by USDJPY once again giving up the major .618 Fib line at 120.11…
…and the inability of CL to come to the rescue.
As we anticipated, CL is under pressure from a dollar that needs to rebound for technical purposes — despite the fact that it is, itself, under pressure from the fundamentalists who noted its responsibility for the crappy trade numbers.
Overnight, CL ramped substantially (yes, again) which has the eminis up 6.50 just before the opening bell. But, it has also run into important channel and Fib resistance at the 1.272 at 62.12 with an even more important, larger scale .618 Fib just above at 64.38. When CL runs out of steam here, how will this affect equity prices — especially with SPX this close to our 2138 target?
continued for members…
I doubt CL will make it over the hump, so we’ll look for the second leg of yesterday’s SPX decline to play out after this morning’s initial pop.
Recall that yesterday afternoon we were looking for a backtest of the SMA20 — now at 2101ish. But, if CL backs off here as I believe it will, the bounce likely won’t get there.
One wild card is the EURUSD. Like DX, it is outside normal bounds at the moment. It reversed at the white .618 — as we expected. It was a major Fib level. But, now it’s eked up past that previous high in order to permit some dollar weakness that won’t affect USDJPY too much.
I know, it’s very convoluted. But, that’s the way things are working lately. Bottom line, we should see that SMA100 tag (red dot above) before too long.
The fly in the ointment: USDJPY’s SMA100 is at 119.29. A sharp reversal there that allows the dollar to rebound and EURUSD to return to earth could undo — or, at least postpone — SPX’s drop. So, we’ll keep an eye on USDJPY as it approaches…
UPDATE: 2:10 PM
SPX has reached 2073.15 — awfully darn close to the red .618 where it intersects with the purple channel midline. It could inch a little lower — the SMA100 is at 2068.82 — but, I’d be looking for a bounce around here.
One caveat — the SMA100 for ES is down at 2059.75. And, lately, the ES chart features have been scoring just as well, if not better, than SPX. It would translate into 2066ish for SPX.
And, it would be completely typical (these days) to have a close at the low with a big ramp overnight to screw over those who stayed short into the cash close. Note the purple midline in the chart below.
It has provided many bounces thus far — and should be expected to continue to do so (until it doesn’t.) The purple channel is the one that has taken SPX up out of the gray channel dating back to 2009.
It’s worth noting that the SMA200 is currently at 2027 — just a tad below the white .618 at 2036. Looks like they should intersect in the next week or two. So, we’ll put a pin in 2036 as the primary “bullish” target for any sustained move below the SMA100 and purple midline.
And, we’ll keep a close eye on CL, which IMHO is worth shorting, especially with the SMA200 hurtling towards it.