In our October 6 update on oil [see: Update on CL] I expressed skepticism regarding oil’s ability to continue rallying.  It had just popped 30% off the Aug 24 lows, and had broken out of a triangle formed while digesting those gains.  Still, I saw it declining rather than making new highs.

…lower prices make sense.  And, they’re necessary — particularly in light of the critical yen carry trade.  Japan can’t very well devalue the yen against the dollar unless oil — which is denominated in USD — declines to offset the currency effect.

Yes, it means that marginal players — like the entire shale industry — will be decimated.  But, that’s a sacrifice that central banks are willing to make.  The health of the oil industry versus the wealth effect of trillions in rising equities?  No contest.

I was wrong about CL declining right away.  It didn’t start until October 9.  continued for members…

Now, for the 4th time in almost 3 months, it is again threatening to break out of the well-formed channel it’s been in ever since.

Whether or not it breaks out will tell us a lot about what to expect from the overall markets.Here’s a close-up:If USDJPY rebounds strongly at the 120.11 Fib, then CL can safely retreat from the channel top without affecting stocks too much.  Otherwise, it had better break out — or risk derailing yet another rally.At this point, SPX is almost certain to top the SMA200 at 2061.25 again.  Whether or not it holds it depends on CL and, should it fail, USDJPY.  So, what else is new?UPDATE:  9:36 AM

Both USDJPY and CL are poking above channel resistance.  I’d stay long just as long as they do. UPDATE:  9:45 AM

USDJPY is taking a breather, but is remaining above the channel top so far.  CL, on the other hand, has not yet broken out. The key for SPX on this drive will be to top 2076.72. This probably means the initial leg will peter out near the purple .786 at 2080.53.   Ideally, it would also pop through and test the purple .886 at 2091.62 while it’s at it.  But, that might not happen until tomorrow.UPDATE:  10:01 AM

USDJPY did not like the consumer confidence beat.  It’s back down below the channel top, but is trying valiantly to regain it.  If it can’t, SPX should get at least a pause here. Keep an eye on CL, which has been sitting on the sidelines until now. If USDJPY is out of gas, CL should be able to provide a boost by topping 37.83 — if even briefly.  2091.62 just got relegated to tomorrow’s agenda.

UPDATE:  10:23 AM

No surprise, but USDJPY suddenly felt the need to be back above the channel top.  And, CL is also inching higher. SPX’s 5-min SMA10 has finally caught up with the index, and should be able to push it above 2076.72 momentarily.UPDATE:  10:31 AM

USDJPY is breaking down as CL is threatening to break out.  This probably means a delay.  I’d set stops at 2075ish, but wouldn’t close the long position unless CL also reversed. UPDATE:  10:48 AM

USDJPY is all over the place, spiking higher when SPX starts to slump but dropping back as soon as SPX recovers. 

It appears to me that it’s trying to keep it close to 2076.72, without exceeding it until the SMA20 comes along and/or for a backtest at the rising white channel midline.  Otherwise, not much support.Meanwhile, CL remains at the brink of a breakout, daring anyone to sell/short. UPDATE:  11:25 AM

It’ll either pop through or back off around 11:30.  At this point, CL is still on the verge of breaking out.  And, USDJPY is still throwing off head fakes every few seconds — with more to come. UPDATE:  11:35 AM

I’ll go ahead and take profits here at 2076.49 and go to cash.   I think it’ll pop through, but would rather work on other charts than stare at this one, waiting for another point.