As we discussed in yesterday’s The Century in Review, a very big picture look at SPX, we are rapidly approaching another one of those lines in the sand where stocks will either rebound or face significant additional losses.

The mechanisms by which previous swoons have been halted have, instead, been egging on the bears.  Can this “market” be saved, or is it about to roll over?

continued for members…Note that ES and SPX have both experienced another “death cross,” with the SMA50 crossing below the SMA200.  This is normally a very bearish development, but the last time it happened in August, the drop has largely played out. Taking a look at USDJPY, which has provided most of the support over the past several years, I can’t help wonder if the sideways red channel might provide a floor.  The big picture shows the rising white channel is kaput……while the isolated red channel suggests the downside might be nearly over. Today’s primary SPX target is a nice backtest of the .618 and/or purple channel bottom.ES is essentially already there.  So, it’ll be important to watch whether or not it breaks out of the falling white channel.Note that oil is bouncing in what continues to be a very reliable falling channel.  No trend change as yet, with two 1.618 extensions just below serving as the next support.I’d start out long this morning, but be prepared for a reversal at 1940-1947 that ultimately could lead us down to 1882-1887.

UPDATE:  9:35

SPX just reached the white .618 at 1940.63.  We should be very close. CL has an obvious upside target at the purple TL.UPDATE: 9:42 AM

I think this is probably close enough.  I’d take profits here at 1947.27 and revert to short with very tight stops — only because CL’s of upside potential to that purple TL.  Our initial downside target is the SMA5 200 at 1933 or the purple midline around 1929.Note that ES is also reasonably close to its channel bottom backtest.BTW, the falling purple channel on the 5-min chart for SPX is just a placeholder.  While it shows additional upside, that isn’t as important as the much larger rising purple channel backtest.  In fact, the red channel below is a better fit in terms of interim highs — but, it would mean a sloppy bottom.  At this point, the 5-min MAs mean just as much if not more.And, the red channel offers a path to our 1882-1887 target as early as today — whereas the purple one suggests tomorrow or even later.UPDATE:  10:25 AM

SPX just reached our 1933 target.  I’d take profits on the short here at 1933.01 and go to cash until it shows its hand a little more clearly.If it breaks down further, the next support is the iffy purple channel midline at 1930 and then the red midline at 1919-1920. I’d be more comfortable holding short if USDJPY would break below trend as CL has.UPDATE:  10:46 AM

Should get another push lower here, says ES.  But, be careful, as USDJPY is melting up as CL melts down.  Back to short at 1931.8.If CL pushes below red channel bottom, will definitely encourage the bears to take over.If the falling purple channel I originally drew for SPX is correct, then this move could peter out quickly at 1929ish.  The key should be CL.

UPDATE:  10:55 AM

USDJPY just pushed through to new highs.  Maybe just a delay as 11:00 is coming up.  But, watch your stops. UPDATE:  11:07 AM

SPX trying to decide between a lift into the euro close or a drop to the SMA5 100 at 1921.70.USDJPY is flirting with breaking trend.UPDATE:  11:34 AM

CL and USDJPY breaking down.  SPX could bounce at the SMA5 100 at 1921.69, but if not the next target is red midline at 1916ish.  50:50 chance of closing short at 1921, depending on CL and USDJPY. UPDATE:  11:39 AM

Tough call here.  I’d rather SPX and ES reach TLs, and CL and USDJPY look unfinished.  Will take profits here at 1921.18 and play the bounce to the falling SMA5 10 around 1927 — at which point I believe we’ll get another leg down to the TL at 1914ish. UPDATE:  11:53 AM

Back to short here at 1928.5 for the red midline and yellow TL intersection at 1914.55ish.  Tight stops advised, as it could be shooting for a backtest of the SMA200 at 1931.

UPDATE:  12:04 PM

Going to be stingy here and close out the short.  Might reopen it if there’s a nice reversal up above.USDJPY is back above the red TL, and CL is likely to test the red channel bottom — or even break through.UPDATE:  12:09 PM

Back to short here on the SMA200 and CL reversals.  Also, 12:09PM is sometimes a turning point.  Not sure why, but it’s more than 50:50.  Target is still 1915ish if it hurries.UPDATE:  12:47 PM

I think that’s close enough for now.  Back to cash, as USDJPY looks like it might bounce.  If SPX and USDJPY bounce here, I’d be looking for a backtest of the SMA10/20 and then further downside.  Not sure if we’ll get the big drop off today or tomorrow, but CL is still looking weak.UPDATE:  1:04 PM

Here’s another SMA20 backtest.  I’ll try a short position here at 1923.56 and see if we can push below the yellow channel bottom.  This is obviously a lower value trade since the channel bottom in at 1917ish — not far below.  No guarantee it’ll drop through.But, ES still has more to go, and CL and USDJPY are both softening again.

UPDATE:  1:12 PM

Stopped out.  Back to cash at 1924.44 and will take a break for an hour or so — self-imposed penalty box.  That’s six trades already, and we’re up 2.81% on the day.  I think I’ll leave well enough alone unless SPX drops below the yellow channel bottom (now 1918ish.)

UPDATE:  1:36 PM

Not exactly an hour, but wanted to point out that TNX just reached a potentially important TL.  Bearish if it drops through — as I think it will.  Key level looks like 20.98.  SPX ready for a breakout or breakdown here. USDJPY is looking weak… …but, CL is getting a bounce, and looks like it could back test the red channel bottom if it gets going.

UPDATE:  1:53 PM

Another try at a short position here at 1925.84, as USDJPY is breaking down again and CL seems to be reversing.  TNX hasn’t pushed below the purple TL yet, but it looks imminent.BTW, if you look at SPX as a H&S Pattern, it targets 1880ish — near enough to our downside target.  Big question now is when it gets there.

UPDATE:  2:05 PM

TNX and USDJPY just broke trend.  ES is getting very close to the TL.  I’d be inclined to let this short ride and see if we can get it even lower before ditching.  We should get a backtest of the broken yellow channel/TL first. UPDATE:  2:20 PM

ES just reached the red TL.  Do or die time for real.  I’ll assume SPX will bounce here at 1914.99.  Back to cash, as CL is almost back to SMA5 50 and USDJPY has a SMA5 10 heading its way. UPDATE:  2:28 PM

Backtesting the SMA5 100, TNX back to purple TL and CL back to red channel bottom.  Will revert to short here at 1922.13.  Tight stops advised, because this would be a good time for a ramp job from USDJPY or CL.UPDATE:  2:34 PM

Stopped out.  Back to cash, probably for the day.  We’re up over 3%, and I’m beat.UPDATE:  2:40 PM

Back to positive on the day, and lots of backtesting going on. Probably get stopped out again, but I’ll take a stab at a short here at 1928 with ridiculously tight stops.  Last chance for <1900 today. UPDATE:  2:53 PM

USDJPY and CL and TNX all just pushed through overhead resistance at the same time.  Back to cash here at 1927.33.UPDATE:  3:04 PM

If you’re a real glutton for punishment, short here if it drops through the SMA200 at 1926.  Tight stops, and expect to be stopped out.  Target is 1906.

UPDATE:  3:09 PM

Back to short per update above.  It’s almost certainly a head fake, so do yourself a favor and ignore this update. UPDATE:  3:19 PM

See what I mean?  Stopped out again by USDJPY and CL ramp. It might reverse at the red channel top, but then it might just sail on through.Here are the culprits… In the end, the dip below the yellow channel bottom was made to look like a mistake, and shorting below it certainly was.    TNX closed back above the purple TL but has further downside potential to 20.21.

And, even though SPX is now 50 points away from 1887, it remains my favorite target.  As always, short overnight only if you have the means to watch or hedge.