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Will there ever come a day when Draghi isn’t massively front-run?

Two days ago, we risked ridicule and asked Is the Dollar Really Breaking Out?  With the ECB about to increase its QE and the FOMC about to raise rates, a higher dollar was a foregone conclusion and, in fact, the most crowded trade out there.  Based on this morning’s actions, the answer is “maybe not.”

DX had pushed what appeared to be strong overhead resistance.  Similarly, EURUSD was forcing its was beyond strong support.  Our Nov 23 bottom call [see: Update on EURUSD] was stinking up the joint (with EURUSD almost 3% higher since that call, it’s smelling just fine, thank you.)

While EURUSD and DX matter, the key drivers of the “market” are USDJPY and CL.  And, it’s their reaction which will make the most difference in today’s action.

For a while, EURUSD’s continuing slump disguised the fact that USDJPY wasn’t going anywhere. DX was happy to push higher, no matter which pair was driving it — which made the yen carry trade seem healthy.  But, with the euro now strengthening and DX slumping, the yen might actually have to do something in order to support stocks.

continued for members…

Note that ES has rebounded nicely……only because USDJPY and CL have. Look for SPX to test the purple channel midline (2073.99) somewhere along the line today. And, since it’s close by, there’s a good chance the SMA200 will come into play at 2065.08.UPDATE:  9:50 AM

As usual, keep an eye on USDJPY, which bounced back up to the red channel midline and needs to retake it……and, CL, which broke down from the small white channel and would need to retake it in order for SPX’s bounce to take hold.UPDATE:  10:01 AM

Well, at least we know we drew USDJPY’s red channel correctly. 

A return to the purple channel midline is much more important to the bulls than the white one.I should point out that ES’ SMA200 is about 6 points lower than SPX’s on a relative basis.  So, it’s entirely possible that SPX will overshoot its.

UPDATE:  10:51 AM

SPX is departing from its most direct path to 2065.  It’s entirely possible it’ll consider the .500 Fib enough of a retracement.  But, the SMA200 still makes more sense.  The key will be a retreat at the white SMA29 currently around 2074.  Need some help from USDJPY, though.  So far, it’s looking like it wants to bounce further.  The more likely help will come from CL, which just backtested the broken white channel.  A strong reversal down to the .786 at 40.06 or .886 at 39.95 could do the trick.UPDATE:  11:09 AM

SPX likely to poke higher here in the 20 minutes between now and the euro-close.  Closing my short position on any sustained move through the purple channel (2074), but would gladly reopen it on a drop back through.UPDATE:  11:20 AM

Popped through the channel midline, so back to long for purple SMA50 and/or white SMA20 at 2079ish.  Note that ES has backtested the SMA20 and is holding – for now.  Should be some selling pressure after the euro close – maybe even leading up to it if traders are unnerved enough.  Would be quite happy to be short again on any move back below the midline. UPDATE:  11:35 AM

Back to short at the midline at 2074.Watch CL, however, as it’s knocking on the channel bottom.  If it pokes through, won’t help the case for 2065.Could offset USDJPY’s nice help…EURUSD just topped 3% on the day, massive move.  Watch out for the SMA100 and 200, though, just above.If/when the dollar turns around, the algos will likely take it as a sign to buy.  For now, I’d say DX has the red .618 at 97.628 in mind.UPDATE:  12:15 PM

SPX just about to the SMA200 at 2065.  Remember, the purple 1.272 at 2060 is also a legit target because ES’ SMA200 is 6 points lower.Also, keep an eye on NKD 19510-19525 – key support.

UPDATE:  12:30 PM

SPX just reached the 1.272 and ES its SMA200.  I’d try a long position here — but ES would fit better with a dip to the .886 fan line currently at 2053ish and NKD — just posted separately — would benefit from shedding another 70 points to its daily SMA200 at 19511.

In other words, there’s probably another 4-5 points downside to go — just not sure when.  The safe play is to go long, but be ready to reverse it if things turn ugly again — perhaps on a SMA200 backtest at 2065? UPDATE:  12:46 PM

…and SPX just tagged its SMA10.

Doing the same: NKD and USDJPY. Tight stops are advised, though, as CL could easily upset the applecart by pushing through that TL.

UPDATE:  1:52 PM

Any second now. UPDATE:  1:55 PM

UPDATE:  2:25 PM

Well, NKD was going for the .618/channel line after all.  So, we got a few more points downside from SPX.  We’ll be watching for a nice rebound from here, presumably led by USDJPY.  Any sustained dip below 2048.96 would be cause for shorting again. The only hitch is DX, which has some unfinished biz at 97.628 and ES, which has some at 2041.09 or 2039.18.

UPDATE: 2:25 PM

Back to the short side on the push through 2048.96.  I’ll be watching for DX and ES to finish. UPDATE:  2:43 PM

I think that’s good enough.  Back to long here at 2042.4.  ES has tagged its 1.618 and almost its .618. USDJPY and SPX have reached TL support… …and, CL has backtested the white channel.  DX came up a tad short, but probably close enough.

UPDATE:  3:28 PM

While everything is poised for a strong rebound, TPTB haven’t turned it loose yet.  So, there’s a very good chance that they’ll suppress prices until after the close, forcing traders to take a chance on staying long overnight. For those not willing to take the chance, you should cash out right here and enjoy some nice gains on the day.  This is fairly likely to close ugly, in order to flush out remaining bulls and trap as many bears as possible.

For daredevils and those who can hedge or watch their position overnight, I think we’ll see a nice rebound tomorrow.  But, with all the moving pieces, I can’t be sure.  It’s just what the charts say.

UPDATE:  3:57 PM

Again, close the long here if you can’t handle the overnight risk.  Otherwise, things are set up nicely for tomorrow.