Bottom line: Draghi promises more of the same while refusing to answer the “explain why more inflation is good for citizens” question.

The EURUSD is selling off and might just reach the bottom of the rising channel established several days after the actual PSPP announcement back in March.This might normally be detrimental to stocks… …but for the fact that the USDJPY has been dramatically ramped back to and above the critical .618 Fib at 120.11.  So, ignore the EURUSD and keep an eye on USDJPY.  As usual, it’s all that matters as long as the yen carry trade is alive and well.

If you’re hip to the yen carry trade, you’ve seen this drill before.  But, if you’re like most investors out there, you’ll see that Draghi spoke and the “market” rose and assume that whatever this asswipe said must be good for the “economy.”

continued for members…

Unfortunately for bulls, the DX has risen right to an area of heavy resistance.This means that the initial pop from USDJPY’s ramp job might just fade unless USDJPY clears 120.11 once and for all.  Note that it also reached the purple .886, which might offer some resistance.

UPDATE:  9:34 AM

SPX has risen only to the top of the falling white channel.  I’d try a short position here at 2032.68 and see what develops.Obviously, the H&S Pattern we were watching yesterday can be derailed with a slightly higher push.  So, watch for TPTB to pull out all the stops to make that happen.  I’d keep stops very tight, and see only a 50:50 chance of this trade working out.

UPDATE:  9:42 AM

Between USDJPY and CL, they’re working SPX higher.  I’d dump the short here and look for SPX to top 2039.12.  Don’t be surprised if USDJPY tops 120.56 as well. CL will do wherever it needs to in order to keep stocks rising.UPDATE:  9:51 AM

SPX just topped Tuesday’s highs, meaning the H&S Pattern is dead.  I’d sell the long position here and go to cash.  Nimble traders might consider shorting, but it’s hard to say whether they’ll be satisfied at having taking out the stops at 2039.12.CL is reversing, but USDJPY hasn’t yet.  And, DX has pushed slightly above its SMA200.  Also, ES has not yet made a new high.  And, of course, SPX’s SMA100 (at 2038.35) is now technically support.

UPDATE:  12:33 PM

USDJPY just tapped the TL that makes up the top of the expanded triangle. It should retreat to 120.11, though it probably won’t happen all of a sudden.  I would short SPX here at 2052.99 for a backtest of the SMA100 at 2038.35. The only potential hitch (besides the algos being in overdrive) is that CL could rebound here in order to drive SPX up to the SMA200 at 2059.91. 

But, I don’t think they’ll try to take the SMA200 today.  I think they’ll do some backfilling — which would most likely consist of backtesting the SMA100 (2037.7 if it closed here today) and/or purple .618 at 2032.48.

DX is looking rather extended.UPDATE: 2:20 PM

So far, so good.  I’m planning on closing the short at about 2038ish.  The daily SMA100 is at 2038.35 based on yesterday’s close, and the 5-min SMA100 is nearly there.The only snag is USDJPY, which suddenly realized what it had wrought… …and, CL, which suddenly sprung to life after departing from the flag pattern.I suspect the bounce these guys will provide is more about delaying the downside rather than averting it.

UPDATE:  3:00 PM

That certainly turned into a bigger bounce than I expected.  Of course, it took a return all the way back to USDJPY’s triangle top to make it happen.  Meanwhile, the 5-min SMA100 has topped both the daily SMA100 and the 2039.12 high — safe to allow the decline.

But, given this bounce, it might not happen until tomorrow morning and there’s a chance that it won’t happen at all.  Once the algos get turned back on, it’s hard to turn them off.  Gotta love these (sarc) unrigged “markets.” UPDATE:  3:30 PM

Going into the final 30 minutes with SPX back to where we shorted.  The swing trader in me says hold on to the short position. USDJPY will crack and that SMA100 will get backtested.  But, it’s hard to ignore the risks.  Bottom line, hold short overnight if you can stand the idea of it ramping up to the SMA200 at 2060.  If not, time to step aside and live to fight another day.  Does it stink?  Absolutely.  But, it isn’t the first time, and won’t be the last.