As we mentioned yesterday, the key was and remains the USDJPY — which definitely did not play along as was necessary in order for SPX to break through the SMA50.  It has since retraced .786 of its rise from 107.997 and is backtesting a broken TL of support.  It might be done, or it might be heading lower to flesh out the rising purple channel at the .886 or a double bottom(my preferred view) .  The sentiment is quite negative at present, and stocks shouldn’t rally meaningfully without it.

If it can reverse strongly, then our upside targets are good to go.  Otherwise, not so much.

UPDATE:  4:30 PM

USDJPY did, indeed, tag the bottom of the purple channel – overshooting a double bottom just a bit.

In so doing, it demonstrated just how difficult it will be for stocks to rally without the yen carry trade’s cooperation.  It’s anyone’s guess when/whether USDJPY reaches our 107.50 target, but I think there’s an excellent chance of doing so when we tag SPX 1931 (the bullish case) or our next lower target.

continued for members…

SPX nearly completed a .886 retrace of the bounce from 1926.03.  The bullish case is that today was a corrective wave after that big bounce, and a tag of 1931.95 will wrap up the downside.  The less bullish view sees today as part of a larger move to 1917.83 — the purple .886 of the rally from 1904.78.  I think there’s a pretty good case for 1917, but I’d feel more confident if the SMA200 were a little closer.  Currently at 1903.6, it’s targeting 1917 sometime later in the month on its current trajectory.  Note the 2.618 Time Fib coming up on Oct 22.

If things get any messier than 1917, the next lower support is the former low at 1904.78 followed by the purple 1.272 at 1873.64.  The Time Fib lines up pretty nicely with 1873 and the falling red channel — which is still alive and well.  That’s more than we can say about the rising white channel — though we did see the bulls attempt to retake it last Friday.

It will all depend on whether USDJPY holds the rising purple channel.  But, my best guess is a bounce at either 1931.95 or 1917.83 tomorrow, followed by a last wave lower to tag the SMA200 later in the month.  If USDJPY loses the purple channel, all bets are off.

On a side note, 10-yr yields hit our 2.343 target on the nose today.