As we discussed yesterday, the key to SPX’s path forward was USDJPY — which nailed our .618 intermediate target yesterday before reversing. It retraced a whopping 78.6% of its drop from 110, and now sits at the .786 channel line where it should at least take a pause or, more likely, reverse here at 109.63.

Stocks also behaved as expected.

Though the charts would clearly indicate further downside to the white .786 or even .886, I wouldn’t rule out a 2/5/14 type reversal here — particularly if bonds and the yen are monkey-hammered into submission  .If so, it would likely see a quick decline to the .786 at 1929.28 and reversal to backtest the SMA100.

SPX reversed strongly at the .786 a la Feb 5 and closed in the green.  Thanks to the overnight ramp job, SPX should open at around the SMA100 (1958.78.)

No doubt, many investors will rush in at this point, which might be a risky move. There’s definitely pop and drop potential today.

continued for subscribers…

Given the probably reversal of USDJPY (at least interim), an open at the SMA100 would constitute a backtest of not only the moving average, but the broken white channel as well.  While it could easily retake the white channel if the USDJPY cooperates, the USDJPY might not.  Indications are that the BOJ might let it strengthen a bit over the coming weeks, as 110 seems to represent a threshhold of pain that Abe/Kuroda are not willing to broach.

If USDJPY doesn’t play ball, then the .886 of 1917.83 is clearly in the picture after the backtest.  If it merely goes sideways or manages to inch higher, then the reversal should be safe — at least for the short term.  On February 6, SPX soared by 21 — gaining a total of 88 points by Feb 12.  I’ll be watching very closely for signs of a break down or breakout at 1958.78 – 1962.58 (the .618.)

GLTA.