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Today marks the 30th session in a row where USDJPY’s Pennant Pattern will dictate the movements of the stock “market.” USDJPY has not only bounced back into the Pennant, but has climbed back above the all-important 120.11 Fib level. 
Futures are loving it, with ES currently up 13.25 with 15 minutes to go before the cash open. But, as usual, there is a limit to the amount of fun one can have on the upside. In other words, there’s a reason ES has stopped right where it has.
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Note it has reached the top of the falling white channel and the midline of the rising red channel. This is an impediment that probably marks the end of the first leg up.
For SPX, it likely means a rise on the open to the white .618 at 1963.96, and a pullback. Depending on how sharply it plays out, it could manifest as a pop and drop. But, in any case, I’d be cautious in chasing it other than the initial move after the open.
USDJPY looks quite pregnant, and badly needs a reset asap. As usual, keep a close eye on it as it’s curving back toward 120.11.
UPDATE: 9:33 AM
SPX just reached our initial target and is still showing a little strength. I’d set trailing stops no lower than 1964 and see if it can’t make it up to the red 1.272 at 1974.92.
UPDATE: 9:41 AM
USDJPY just popped out of a little TL of resistance. I’d be surprised if it tops Friday’s high without more of a backtest along the way.
Odds are SPX will keep going until this reverses. Still focused on 1974.92, but this move is looking tired.
UPDATE: 9:51 AM
The initial downside target is the white .618 at 1963.96 — also the top of the rising white channel SPX broke out of this morning. So, it’s due at least a backtest. The issue is timing. If it happens quickly, the backtest could be as low as 1950-1952. If it takes its time, then 1963 late in the day is a reasonable expectation.
ES has better fleshed out the falling white channel, tagging exactly where I’d drawn the top. In addition, it has reached the red .236 Fib at 1966.26 – a natural reversal after last weeks .786 reversal at 1860. In fact, this is a pretty clear A-B-C higher from those lows.
And, even CL has probably topped out, completing a little Bat Pattern in order to climb back into the rising purple channel.
Bigger picture: if our new analog is worth anything at all (the purple lines) then SPX will run into resistance at the SMA50 – now right at 2000 and dropping about 2 pts/day. This could come later this week, with Thursday as the top candidate at this point.
This would mark the end of the volatile corrective wave since Aug 24 and set up the next low to 1823ish later in the month. So, traders who don’t like to play every little move are probably okay staying long in here, with 1988-2003 as the most likely terminus of this bounce.
UPDATE: 11:05 AM
No further progress in either direction. SPX still lingering around where we shorted. The problem is USDJPY, which has spent almost all of its firepower — topping 120.11 and nearing the Pennant top. If it reaches the Pennant top, the expectation is for another reversal — though one of these days it’ll bust out (not without some headlines, tho.)
So, it either gets to a level that prompts traders to sell, or it continues going sideways. But, since it needs to backtest 120.11, it’ll probably continue sideways with a slight downward bias into the close (unless it’s truly ready to break out.) The most likely 120.11 tag will come when the 5-min SMA200 reaches that level.
That’s why I’m thinking 1963.96 late in the day, possibly even at the close. If I’m wrong, and USDJPY does continue to follow the upper TL into the close — maybe even topping the previous high as 120.39 — then SPX has potential to reach 1988.98 today. Stops at 1978ish would make sense just in case.
But, I think they’ll wait until a backtest establishes a little more support.
UPDATE: 12:06 PM
USDJPY just popped up through the TL and topped last week’s high. It’s awfully close to the Pennant top, but no follow through just yet. If it doesn’t, then this is just a head fake stop-running exercise and there’s no reason to dump the short. 
I’d hang on just a little longer unless USDJPY sustains the move above the Pennant top — currently around 120.47. 
UPDATE: 12:21 PM
USDJPY just tagged the Pennant upper bound and is acting like it’ll reverse. Remember, the previous test of the Pennant top overshot by a good margin (refer to chart above.) So, a reversal here isn’t a lock. Note that the SMA200 is up past 120.11 — so much for that theory.
UPDATE: 2:04 PM
And, remember, the .786 is just up above at 1988.98. SPX can stay above the dashed red line for the rest of the day and reach it without any special handling.
Let the midline itself serve as a guide for stops.
USDJPY certainly not breaking out…
UPDATE: 2:36 PM
UPDATE: 3:46 PM
SPX has reached our third upside target — the .786. There’s no guarantee it’ll retrace any of the move it’s made thus far, but that would be unusual for it not to. USDJPY has faded back below the Pennant top, so that argues for lower prices as well. 
If you can hedge overnight, holding the short makes sense. If not, then you’ll want to ditch it somewhere in the next 10-15 minutes. Ideally, it’d sink back to at least the channel midline at around 1983 and continue in the morning to at least 1964.
But, there’s probably too much short covering going on. I wouldn’t rule out a last minute spurt to 2002ish or at least 1989 — just to run the stops. Use your discretion and trade safe. Only hold past 1989 if you can live with the risk of an overnight ramp job.