If this morning’s setup looks vaguely familiar, it’s because it’s practically a carbon copy of yesterday’s.  Futures up big on USDJPY’s threat to retake 120.11, bond futures getting hammered, oil bouncing overnight…overnight ramp jobs are what TPTB do best.

Before we dive into today’s forecast, consider some long-term channel lines on SPX.  The central question we’ve been facing ever since calling a potential top on May 21 is whether TPTB can overcome the 1.618 Fib at 2138: the terminus of the last big Butterfly Pattern.

The above chart shows many similar challenges along the way, though few have equaled the current one in terms of the potential repercussions should they fail.

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From a Fib standpoint, any meaningful reversal from the 1.618 should result in a drop to the 1.272 at the very minimum.  For SPX, that’s 1823 — about 87 points below current prices.

A more typical reversal would be to the .886 or .786 (1474 and 1381 respectively.) Think of the march upwards we’ve had, and then imagine a 433 or 527-pt plunge.  Clearly, central banks would try to prevent it.  But, could they?

We talk about TPTB an awful lot.  But who are they?  Hedge funds might be just as happy to make money on the downside as the upside.  And, they clearly carry a lot of weight.  But, central banks, investment banks, insurance companies, pension plans — the bulk of the institutional investors in the world — all have a preference for rising prices.  It suits their objectives.

If they see markets plunging, they (except central banks) will be part of the rush for the exits to some extent.  Ditto if they get spooked about a potential market slide such as we’re seeing now.  They’ll obviously take steps to protect themselves.

But, they can’t survive in a protracted decline.  Each of them relies on rising prices to stay in business. So, they won’t gleefully join in or help instigate a crash — whether or not they’re protected beforehand.

Central banks thought by taking interest rates to zero and providing an influx of liquidity they could arrest the 2007-2009 market decline and goose the economy.  It worked.  They did it again in 2010 when it looked like things were heading south again.  Had they not, the charts suggest there would have been another leg down to a lower low than 666.

But, blossoming addicts as they were, they couldn’t leave well enough alone.  And, they had plenty of help.   As soon as investors learned the CBs had their back, they became more fearless.  HFTs joined in, turning normal bounces into new highs.  Along with hedge funds, they discovered that they could manipulate the market all they wanted so long as it resulted in higher, not lower, prices.

continuing…

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Today’s targets for SPX include the channel top at 1912ish, and after that the gap at 1970.  The challenge of course will be to break out of the falling white channel.  If it fails, then 1856.46 is still in the picture.  If it breaks out, then the gap close and backtest of necklines, etc. come into play.

Keep an eye on USDJPY’s flirtations with 120.11……and, CL’s threat to break lower. UPDATE:  9:34 AM

NKD is up big overnight, too.  But, like SPX, it’s not running away to the upside.  It has completed a little IH&S, but isn’t doing anything with it just yet.  Like SPX, I don’t think it’ll get the all-clear signal until USDJPY tops 120.11. UPDATE:  10:56 AM

Dudley just on Bloomberg saying that a September rate increase is less likely.  No news, and we’ve been saying it forever.  The market should yawn and say “duh!”  But, it has the potential to slow or reverse the retreat.  Good time to update your stops, just in case.

UPDATE:  1:37 PM

The culprit, of course, is USDJPY — which eased slightly higher through a fan line.  Probably nothing, but you never know.We’ll check it again as it approaches the .707 and SMA20 (white) on the 60-min chart at 1912.68.

UPDATE:  2:17 PM

USDJPY has had all kinds of chances to retake 120.11, but hasn’t. Note TNX heading lower again after the .786 tag.UPDATE:  2:35 PM

UPDATE:  2:47 PM

USDJPY, NKD and CL all acting weak and EURUSD pushed through support to its lows of the day.UPDATE:  3:10 PM

UPDATE:  3:21 PM

USDJPY up against TL from earlier.  A rise above toward 120.11 means more upside for SPX.  Otherwise, as I expect, a reversal is warranted.

UPDATE:  3:41 PM

UPDATE:  3:46 PM