USDJPY’s Pennant continues to drive markets.  Today, it’s lower.continued for members…

The BoJ would love to morph USDJPY’s fluctuations into a rising channel, but that means including some tags on the lower Fib levels such as the red .618.  They’re more likely to chicken out at the rising red TL and purple .236 at 119.27 — especially if SPX is tanking.As for SPX, I continue to expect a retracement of last week’s uninterrupted melt up.  The most obvious target is the SMA50 at 1991.07, but the white .786 at 1988.98 would probably do the honors.If it should fail to hold, then we can start getting interested in the .618 at 1963 — the bottom of the rising purple channel as drawn.

ES certainly supports the idea of a deeper retracement than the 11-pt drop currently showing.  1979 looks like a gimme.UPDATE:  10:12 AM

USDJPY reversed as the cash market opened, and has pushed back through the Pennant bottom.  It just tagged the 60-min SMA20, where many previous rallies have reversed.  SPX has complied with the bounce, backtesting this morning’s initial plunge and threatening to go positive on the day.  It’s in USDJPY’s hands.If SPX pushes through the gray channel line, it’ll be a sign of 2020.86 coming under attack.  Between USDJPY and CL, it could easily be done.  It’s less clear whether or not that is the objective.UPDATE:  10:35 AM

SPX still threatening to push through.  If it does, we’ll see 2020.87 or greater in the next hour.   Basically – last chance for a reversal.CL is pushing through channel resistance… …and USDJPY is pushing past the SMA20.  Only a reversal by both right here could save the bears. UPDATE:  10:47 AM

Thinking very hard about cutting loose the short position here. USDJPY is eyeing the white TL up at 119.952……and CL is off the hook.UPDATE:  10:54 AM

Covering here.  Will consider shorting again after >2020.87 is bagged — if USDJPY and CL reverse.  As we discussed last Friday, I think they just want a higher high, and would then will be okay with a retracement.UPDATE:  11:08 AM

2020.86 just topped.  Will short here… …only if USDJPY breaks down below the moving averages or CL dips back below the channel line.Next significant upside target is the purple .618 at 2032.48 — but, it doesn’t appear likely to occur until the end of the week (if it happens.)

UPDATE:  11:28 AM

So far, so good.  First test coming up as USDJPY approaches Pennant bottom again — about 119.78.UPDATE:  11:32 AM

USDJPY just tagged Pennant bottom, could see a bounce here.  Careful on the short position…UPDATE:  12:00 PM

USDJPY just bounced off the Pennant bottom and through the SMA200, meaning it’s not likely to plunge through the Pennant bottom any time soon — if it does at all.  Most likely scenario is sideways for SPX until the SMA200 finally catches up — probably at 2014.75 — then maybe some action overnight.I’m open to more sooner, but the algos are clearly in control again — and, they rarely let SPX dip below the 5-min SMA200 after staging a rebound like this morning’s.

UPDATE:  12:50 AM

SPX just tagged the 5-min SMA200.  I’d be prepared to close the short here if USDJPY starts rebounding.  If by some miracle USDJPY drops through the Pennant bottom, then our original downside targets are back in the picture.UPDATE:  1:10 PM

SPX just tagged a TL off recent lows as USDJPY found 5-min SMA100 support and VIX tests its 5-min SMA200.  Should get a bounce here up to 2015-2016.UPDATE:  2:00 PM

VIX and USDJPY hitting resistance/support…

…as SPX reaches .886 of this morning’s lows. Seems like we should see a bounce here, but we haven’t even reached the white .886 yet.  I think there’s more to go, but at any time SPX could jump up and backtest the red TL – probably when the SMA20 reaches it.

UPDATE:  2:21 PM

SPX is backtesting the TL as expected……and, CL is supporting lower prices……and, VIX is back at the point of potentially breaking out……but, USDJPY is breaking out, trying to reign in the downside pressure.  Will SPX obey USDJPY or these other influences? Should be interesting to watch.  Remember, if it breaks below 2006.1, the .886 is at 2003.88 and our original target is down at 1988.98.  A third potential target (less likely) is a backtest of the purple .500 at 2000.90.  It has the added advantage of being a round number.

UPDATE:  2:36 PM

USDJPY still putting on the brakes, with the hop above the purple TL and SMAs.  We’ll get a bounce here just above 2006, but still unclear whether they’ll try to ramp it much or not. Note that VIX has broken out and is backtesting the white TL. still think we’re headed lower, but for whatever reason they’re slowing the process down.

UPDATE:  2:48 PM

VIX just pushed below the white TL, meaning no more downside at the moment.  Covering the short here at 2009.87.  I’d go long here, but I’m not looking for a big rebound — only 4-5 points.This might just be a temporary blip, but like earlier this morning it’s tough to say for sure.  Would be happy to short again if USDJPY pushes back below the TL and VIX back above.

My best guess it that SPX will rendezvous with the SMA200 at 2012-2013 at the close, with the rest of the decline to come in a gap down in the morning.

UPDATE:  3:08

Back to the short side, as VIX is back above its TL and USDJPY back below its.

UPDATE:  3:25 PM

SPX jsut reached the .886 at 2003.88.  I’d cover the short here at 2003.84 and see if we can’t get a lower push later — either into the close or at tomorrow’s opening.Note that USDJPY is suggesting lower prices are still ahead. UPDATE:  3:36 PM

Guess I spoke too soon.  Back to short, but with tight stops on account of ES just now reaching its .886.  Remember, 2000.90 is also potential support.  And, I guess I should throw 1996.06 — the red 1.618 — into the mix.  It’s pretty close to the white channel midline, and could offer good support. Getting another leg down here, courtesy of CL and NKD.  It’s not 4pm yet, but I don’t think USDJPY has closed below the Pennant bottom since Aug 24.  Unless it’s a head fake, it’s a fairly bearish sign.  I’d stay short overnight if you can hedge or at least monitor your position.  Otherwise, take profits here at the close.

As to head fakes, it could definitely be one.  It wouldn’t take much for ES and SPX to both close back above their .886s.

EPILOGUE:

SPX did, indeed close back above its .886.  So, technically, it could reverse and resume its climb to the SMA100/200.  But, the better target remains the .786, followed by the .618.  Note that they correspond with a purple channel midline and bottom, respectively, not to mention key SMAs.And, other charts also suggest prices are going lower.  USDJPY was below its Pennant when SPX closed for the first time since its inception in late August.VIX clearly broke trend and has plenty of upside.  And, NKD completed a H&S Pattern that suggests lower prices to come if it plays out.  A little heads up…I will be out of the office both Thursday and Friday.  I should have time to chart first thing in the morning on each day, but that’s about it.

Have a great evening, everyone.