SPX should nail our next downside target (set last week) in the opening minutes of the session.  As we discussed in The Big Picture yesterday, this is a critical level for TPTB.  A drop through this level could get very ugly, very fast.

From Is it Safe? posted on Apr 29, note the red dot at 2042 on Friday, May 6:

continued for members…

The red dot at 2042.61 indicates the purple .886, white channel bottom and red channel bottom — the most logical point for a reversal  But, I’ve also marked (white dot) the top of the gray channel where it intersects with the purple channel midline.  I put it at around 2035.

If SPX doesn’t immediately reverse at 2042.61, this is probably where it’s headed.  It would make a very nice head fake.  It’s a fairly common tactic market makers use when a pattern is as clearly laid out as has been the falling white channel.  If it happens, it could come at the close in order to convince traders to follow a bearish path leading into the weekend.

UPDATE:  9:32 AM

There’s the .886 tag.  Back to long here, but keep an eye on your stops in case it drops through to that lower target.  Our initial bounce target is 2054.35.CL is dropping, which isn’t a great sign for a bounce.We’ll know they’re serious about a bounce when NKD pops up over this trend line and targets the white channel midline and SMA5 200 at 16060.UPDATE:  9:45 AM

So far, so good.  NKD has reached its initial target, so SPX could settle back here.  If it’s meant to reach 2054, it should only drop as far as the SMA5 10/20 at 2048. We’d need to see USDJPY or CL start making some moves at that time.

If it can maintain momentum and break through 2054, then the purple .618 at 2063.31 is the next upside target. UPDATE:  10:20 AM

I think we’re getting another leg down here, possibly as low as 2043-2044.  I’d step aside and let it play out. UPDATE:  10:36 AM

So, plan B it is.  Unless it bounces right here, we’re looking at 2035.40ish — probably at the close.  Back to short with tight stops.UPDATE:  11:11 AM

So, we just tagged the yellow .707, which is a legitimate bounce spot.  Remember, this all started with a reversal at the yellow .886.  If our 2035.40 target is legit, then SPX should limp along here for the next 5 hours, poking up above the SMA50 a few times as a head fake, then falling back. 

 I’m afraid we have lots of zig-zagging ahead of us, today.  I’ll take a break and focus on some other charts until it sorts itself out.  I think you’re probably safe staying short for 2035.40.  Just keep your stops where you’re comfortable.UPDATE:  1:25 PM

If it’s going to reverse today, here’s the best opportunity.  Back to short here, with tight stops. UPDATE:  1:59 PM

Stopped out on the short.  Back to long with tight stops.  Targeting the yellow neckline at 2058.25, followed by the white channel midline at 2061 (at the close.)Pretty much everything just broke out, though there’s overhead resistance in many instruments not that far away.  Not sure how far this will go, hence the tight stops. UPDATE:  2:12 PM

ES just tagged its neckline, and USDJPY is stuck at its SMA5 200.  Back to short, though not a lot of conviction at this point.UPDATE:  2:40 PM

Not looking too good for a reversal here, as USDJPY just pushed above the purple channel top and NKD is knocking on the bottom of the rising red channel.  Feels like the algos could take over and run it on up to 2062.  VWAP, BTW, is way down at ES 2040.69, about SPX 2045.  Back to cash, though if it starts backing off and USDJPY poops out, I’d be ready to short again. UPDATE:  3:32 PM

Probably a head fake, but I’ll bite.  Back to short on the drop through the SMA5 20.  Objective is a backtest of the red channel at 2046ish, though the SMA5 200 at 2050 is likely to provide support.If the falling red channel doesn’t hold, then the rising red channel would make an interesting target — closing right on critical support, with the 2035.40 target just below for Monday.  SPX has already bounced off it.  So, technically, that channel is still intact and SPX is looking bullish.

We detailed, earlier, all the reasons why 2035 would be a better place to bounce.  So, we won’t give up on it just yet.  Just for the record, I’d hold neither long nor short over the weekend.

UPDATE:  3:56 PM

Nothing ventured, nothing gained.  Back to cash for the weekend on the shocking (not) monkey-hammering of VIX at the close.