In a move that surprised no one (except, apparently the market) China joined the party and ramped up its easing efforts by lowering interest rates.

The resulting effect on the futures, however, was to drive ES to the 1.272 Fib level — the upside target we identified a few weeks ago [see: Nov 4 update] and Fib reversal candidate.  So, as yesterday’s overnight futures action tagged an important support level (the SMA10), last night’s could have the opposite effect.

It’s important to note, however, that there was definitely no reversal at the .786 Fib level, meaning that nothing to date suggests completion of a legitimate Butterfly Pattern.  However, we have seen many, many 1.272 reversals along the way without a prior set up.  To review Butterfly Pattern rules, see THIS.

USDJPY rallied on the news, but is still well below the .886 we discussed at length yesterday and will probably continue to sell off near-term (for anyone who missed it, there’s trouble brewing between Abe and Kuroda.)  DX is rallying toward our 88.47 target — up to 88.295 at the moment.  However, it just completed a Bat Pattern at the .886 of its drop from 88.365 to 87.23 and might need a breather.

Bottom line, be cautious about chasing this rally.  If it weren’t OPEX, I’d say there’s high potential for a pop and drop.  As it is, any drop would probably have to wait until Sunday.

The equivalent 1.272 for SPX is 2073.28.  As we discussed yesterday, TPTB have been running indices up near, but not quite to, natural reversal points — mitigating the odds of a reversal during market hours.  Keep an eye on ES, USDJPY and NKD as SPX approaches 2073.28.  If they start inching lower, that’s what you should expect to happen today.

UPDATE:  9:39 AM

Getting close.  Will it make it, or will we see it peter out around 2071.65?  ES is notching lower, down 4.25 from it’s pre-opening highs.  If SPX does reverse short of 2073, look for a backtest of the broken purple channel for starters.

Anything more serious would mean closing the gap just created at 2050.75.  But, again, I expect this will wait till the after-hours Sunday or early Monday when only futures players can benefit.   Cash market investors have learned the hard way (like last night) what can happen when one leaves a short position on overnight.

Then again, there are about 8 such gaps in the wake of the rally from 1820 that the “market” seems to not be bothered with.  Why start worrying about appearances now?