Note: for those wondering, ThinkorSwim did a major update over the weekend — which means that our color scheme options were changed.  I’m trying this one out today — but, the jury is still out.

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USDJPY toyed around with breaking out of its triangle on Friday (purple lines below), but ultimately failed when it ran into the SMA200 — leading to a nice pop and drop opportunity we discussed early in the morning.

Note that it’s still being constrained by the SMA200 — which means SPX might not go anywhere after this morning’s initial pop.

SPX gained 20 points in the first half of the session, only to give back 30.  Now that USDJPY has retested the .618 at 120.11, we’re left to wonder how long it’ll take before it breaks out for real.

continued for members…

For those wondering why our forecasts have been so short-term lately, consider that this triangle 120.11 20 out of its 25 sessions since the Aug 24 plunge.  It will break out.  The question is “when?”

CL, along with the rest of the commodities complex, looks weak this morning, but is clinging to channel line and TL support. As for SPX, initial support looks like 1920 or so……with the other downside targets from last week still in place: channel support at 1912.68, the .786 at 1899.99, and the .886 at 1884.61.

A drop below 1908.92 invalidates the potential IH&S we discussed last week.

UPDATE:  9:45 AM

USDJPY is showing a very familiar pattern — a drop to support, then respecting a TL off the recent lows (that usually doesn’t relent until after the close, rinse and repeat.)

If it works, the major upside target is 1978.19, though there are plenty of minefields between here and there — starting with the red channel line at 1920.  I’d keep stops very tight on this one, as USDJPY is still showing weakness.

UPDATE:  9:55 AM

USDJPY has broken below that white TL, which means SPX probably isn’t done going where it’s going.  There’s at least a 50:50 shot at 1900.UPDATE:  10:00 AM

Another key level to watch is ES 1897.25 — initial horizontal support, with additional Fib support at 1892.75.

This is tricky in here because SPX has obviously completed a H&S Pattern (red neckline) targeting 1796ish.  Any little dip here is liable to unleash a lot of bears unless USDJPY and CL rebound sharply.The left shoulder low (pt 71) is at 1903.07, so we might not get the full .786 here.  As always, watch USDJPY for clues.  When it’s time for SPX to rebound, USDJPY will usually tell us.

UPDATE:  10:16 AM

ES just tagged that red .618 Fib at 1892.63.USDJPY hasn’t signaled any support yet.

UPDATE:  11:26 AM

No support for USDJPY until 119.65 or so.And, it’s time to start focusing on NKD again.  Remember it bounced in our target range last Thursday after reaching the highest level that could produce an all-clear signal.  But, the better targets are 17064 and 17092.  A break through either of those levels would signal a very dangerous road ahead for stocks.So, while the BoJ will no doubt feel a little pain relative to SPX’s troubles this morning, they’ll be watching these critical levels in NKD extremely closely.  So will we.

UPDATE:  12:00 PM

SPX finding some support here at the .236 purple channel line as well as the .236 retracement of the drop from 2134 to 1823.  A bounce here would reinforce that scenario.  We’ll watch USDJPY to see if it breaks out rather than breaking down at the red TL.  Staying short unless that happens…SPX’s .886 at 1884.61 wouldn’t quite reach the bottom of the falling purple channel — which is currently around 1881.79 and dropping.  So, we’ll remain open to an overshoot — prehaps to the 1.618 extension at 1881.75.

First, however, it needs to break below the .236 channel line at 1895ish.

UPDATE:  12:50 PM

SPX has reached 1889.96 so far, and the bounce is coming up. So says USDJPY, which just fired a warning shot at bears by spiking up past the red TL.  It didn’t stick, but it sent a message that it’s ready to bring the decline to a halt in the very near future.UPDATE:  1:37 PM
I think there’s a decent chance we backtest the .786 at 1899.99 when the 5-min SMA50 crosses it in a few minutes.  That’s a 9 point bounce from here — maybe worth a shot if you’re a day trader.  The cue is a push beyond the white SMA10. It should also entail a bounce by USDJPY up through its SMA50.

Also, with the session about 2/3 over, TPTB have to start thinking about getting SPX back above the H&S neckline at 1906 by the close.  From a channel standpoint, that would mean getting back to the purple midline, which actually ties in better with the 5-min SMA100 reaching 1907 or so.

So, we’ll also watch to see if SPX can push past the .236 channel line it’s about to backtest again.  Doesn’t mean it has to happen now.  There’s still plenty of time for a quick dip to 1884 or 1881 first.  But, time is running out.

In terms of today’s bottom, note that the falling red channel from 2134 has a .236 line running through the bottom of the chart.  I show it around 1882 or so.  But, it’ll be easier to fine tune once today’s low is in.

If, as could happen, SPX decides it’s time to tag the white .886 that it narrowly avoided on Aug 24, that’s down at 1856.  It would mean a breakdown from the falling purple channel, which seems somewhat unlikely…  Alternatively, the channel crosses 1856 Wednesday morning.

Stay tuned.

UPDATE:  2:05 PM

There’s the .886 at 1884.61.  Bottom should be close.  Safe bet is to take profits here, though keep in mind the slightly lower lows at the 1.618 and the channel bottom: 1881.75 and 1878ish.  Note that VIX’s flag is almost done.I’d want to be long as soon as USDJPY breaks above its SMA50 and starts spiking.UPDATE:  2:16 PM

There’s the 1.618 at 1881.75.  I’d go long here, but USDJPY still not reacting.   Watching it closely…Let’s not forget about NKD…VIX is ready to reverse or break out.UPDATE:  2:22 PM

FWIW, I show the bottom of the big rising purple channel right here at 1880.5.  So a long position is worth a shot right here.

FWIW, USDJPY has broken above the red TL, the white TL and a fan line from the recent bottom.I feel decent, but not great about this reversal.  I still worry about a drop into the close to 1874ish that violates Fibs and channel lines and sucks in a bunch of bears prior to an overnight bounce.  But, that’s probably just me being paranoid…

The first test is getting past the SMA10 at 1888ish.

UPDATE:  2:54 PM

The bounce is slipping.  I’m concerned that the above scenario is playing out.  Watch your stops, as a dip below 1881.75 would likely reach 1874 or lower.UPDATE:  3:08 PM

USDJPY looks like it’ll at least backtest the red TL and possibly the white fan line as well.  NKD reached 17375 so far, with the .618 support at 17092.  Maybe after the close or first thing tomorrow morning?  That’s the rub, and it doesn’t tell us whether to hold short overnight.  If you can hedge, it’s worth a shot — as a close here brings 1856 into view.But, I’d rate it as no better than a 50:50 shot.  VIX says stocks rebound higher from here, though the flag pattern could also break out and support a dip to 1856.Note that SPX’s 5-min SMA100 is now at the neckline – 24 points away.  Watch for a potential break out through the SMA10 and 20 at 1883.90.

Remember, ES retraces .786 of its rise from Aug 24 at 1860.25.  It’s only 12 points away.  So, while SPX has already retraced over .886 of its, TPTB might want ES to be able to put in a solid bottom overnight.  It could even tie in with NKD testing 17064, and rebound back to even by tomorrow morning.  Something to think about, as I watch USDJPY not bounce.

UPDATE:  3:39 PM

UPDATE:  3:47

USDJPY is spiking higher, but probably too late to get SPX back to 1907.  Will play along if 5-min SMA50 (1888.82) topped.UPDATE:  3:50 PM

USDJPY still going strong.  Feels like a head fake.  Of course, the fact that SPX isn’t following along could be the head fake.  As is often the case, too much uncertainty overnight to be unhedged overnight.UPDATE:  3:55 PM

Channel bottom now at 1874.50.

FWIW, USDJPY appears likely to tag the bottom of its triangle tomorrow or overnight.  Would not be at all surprised if it does so overnight in order to allow NKD to reach 17092, followed by a bounce before tomorrow’s opening that traps today’s overeager bears.