Between the soothing, dovish tones emanating from Bullard and Kudlow and the warlike tone of our Tweeter-in-Chief, it’s hard to know whether the market is the windshield or the bug.  Is the bulls’ plan coming together, or are they about to lose it all?

As expected, ES backtested its SMA10 and the channel from which it broke out on Wednesday.  Currently off 22, it’s not enough to allow SPX to do the same.

SPX’s SMA10 is at 2625.29, 37.44 below yesterday’s close.  In other words, to construct a proper IH&S, ES should return to its overnight lows — which means VIX tagging our upside target and maybe finally getting those moves we’ve been waiting for in CL and RB.

But, as we’ve seen, unleashing VIX isn’t always a good idea.  With the SMA200 not all that far below current levels, is it worth the risk?

In any case, it appears that yesterday’s thoughts were on target.

SPX looks like it’s pushing above last Thursday’s highs…  So often, TPTB miss opportunities to construct IH&S Patterns — helpful in that they result in much less firepower being needed to produce/extend rallies.  FWIW, there will be another opportunity at 2671.

The bulls should be really, really careful as the backtest unfolds (2612-2625.)  A failure there could translate into a drop to new lows.  And, if things get really ugly, remember this chart from More Where That Came From:

continued for members…

In addition to CL and RB, USDJPY is ripe for a backtest. UPDATE:  10:50 AM

SPX just tagged the SMA5 200 at 2632.84, still a little further to go if it’s to tag the SMA10 as well — which I think it will after a bounce.  FWIW, the longer it waits, the lower a channel backtest would be.  I’ve sketched in the purple channel to show what that might look like if it dips below the SMA5 200.

I show the channel top at around 2620.  But, the purple channel bottom crosses it at 2615.16 (just above the .236 at 2612.97 at around 1:45pm.  Both would make nice targets if allowed.ES is not comfortable with dropping through that little red TL.  That’s where the drops in CL/RB or rise in VIX might come in.  So far, not much action in any of them. Here’s a fun thought…touched on this the other day.  COMP still hasn’t reached its SMA200 — would require a 3.47% drop.  If SPX were to drop that same percentage, it would mean a 91-pt drop to 2540 or so.It wouldn’t be enough to put together a C=A (2461.72) or even a lower low.  But, that big a drop might get a panic going, and who knows…?  The Feb low was 2532.69, only a few points below.

Bottom line, a drop through the SMA10 means we could get a shot at a big, Friday afternoon whoosh.*  So, if you cover shorts at the SMA10, you might want to stick around and make sure it bounces instead of getting an early start on the weekend.I imagine that would mean a pretty ugly day for AAPL, MSFT, AMZN, etc.  Interesting that AAPL (the biggest component of COMP) is 3.73% above support at its SMA200.  Hmmm…you know that tingly feeling you get when something exciting is about to happen?*For the record, only a drop to 2138 would restore my faith in market integrity!

UPDATE:  1:44 PM

So, the easy money cover is coming up.  From now on, it gets pretty dicey.  And, below 2612.97, it could be really fun.  After watching Mnuchin, I think a bigger drop just became more likely.UPDATE:  1:55 PM

Do or die time for SPX, ES and DJI.  COMP, DXY, CL and RB: still plenty of room to drop.  I think we’re going lower. UPDATE:  2:40 PM

Approaching another danger zone here: (1) the right shoulder of SPX’s potential IH&S is almost to the level of the left; (2) VIX has backtested the broken white channel bottom; and, (3) ES and SPX just tagged their SMA200s. UPDATE:  3:55 PM

It’s anyone’s guess, But, despite the possibility that the charts allow for more follow through on Monday, we have to respect the SMA200. A close above them suggests a bounce.  Since it’s already broken out, USDJPY is in position to lever stocks higher.  RB and CL have a little further to go for backtests, but that could easily happen on Sunday, with a rebound by the time the cash market opens on Monday.

I’d rather be long, even if it means missing the bottom.  But, as always, only hold long over the weekend if you can handle the gap risk.  Life is too short to spend all weekend worrying. GLTA.