We’re entering the crap shoot phase of the “market” now, with bets being placed on next week’s central bank actions driving most of the action.  The big development this morning is the EURUSD, which was finally allowed to break down.  It should have occurred last week after the ECB stood pat on additional easing.

But, of course, central banks have an aversion to prices tumbling as they’re pontificating.  Kinda makes them look bad.  Draghi is no exception – hence the after effect fireworks.  And, to be more precise, you’d have to say the propping up really dates back to late June, when EURUSD inexplicably rallied after its Brexit tumble.

The big beneficiary, of course, is the USD, which moments ago broke through its SMA50.  But, futures are still negative, for obvious reasons.  This morning’s inflation figures suggest a rate hike is needed.  In this case, what’s good for the USD isn’t going to help stocks.  At all.

continued for members…

Oil is still in the dumps… … and USDJPY hasn’t really benefitted from the EURUSD driven DX gains.

This leaves SPX likely to conduct the backtest we discussed yesterday afternoon — the May 2015 highs at 2134 or the 1.618 at 2138.

UPDATE:  9:38 AM

SPX just came awfully close to the May 2015 highs.  It will probably leak lower, but I’d suggest covering here just in case.  If it ends up dropping through, it should be easy enough to re-short.

The answer would appear to be more VIX hammering and USDJPY ramping.  USDJPY has been steadily increasing since early this morning…

…and, VIX is still hugging the SMA200 — where the smallest of moves can signal bigger things.

The chart below shows ES (thin purple line) vs VIX.  The SMA200 has been essentially flat for the past several days.  Note how each little tick above or below the SMA200 has acted like a toggle on ES prices — extremely easy to manipulate.

UPDATE:  10:03 AM

There’s the rest of the move to 2134.72 and the SMA5 200.  If it’s going to reverse, this is the spot.  If it doesn’t, then we’re on to 2119.  I don’t see any catalysts to prop it up at this point, so I’m inclined to short it if ES drops through the white channel bottom.

UPDATE:  10:07 AM

ES just dropped through support too, so I’d revert to short here. Just know that USDJPY is ramping, and could halt the decline with a pop above the red TL. I can see the spoofing coming in on ES already, trying to get it back to the channel bottom.

Let’s watch VIX carefully, as it’s back above the SMA200 and will test its SMA5 200 and a little channel top pretty soon.

As we discussed yesterday, SPX can reach new lows at 2119 without ES reaching new lows.  In fact, 2119 on SPX would put ES at about its .886 around 2111.

UPDATE:  10:29 AM

As the SMA5 10 approaches, this could break either way.  A pop by USDJPY above that red TL could get SPX up on top of the SMA5 10 in order for the algos to do their thing the rest of the day.  Or, we could see it act as overhead resistance if USDJPY reverses off the TL.  At this point, I’m inclined to think SPX will reverse higher.  VIX is back down to its SMA200, so everything’s in place.  I’d revert to cash on any sustained move below it.

I imagine the Fed is having a conniption fit about now.  Hemmed in in every direction.  Non-Fed players who want rates to stay low are no doubt sitting on their hands, shorting, and bidding VIX up — only too happy to demonstrate how dangerous a rate hike would be.

UPDATE:  10:38 AM

VIX just dipped below its SMA200 for the second time.  I’d revert to cash here and let the algos battle it out.

UPDATE:  10:47 AM

I’ve been looking for signals all week that the Fed is going to position for a rate rise.  This could be it: VIX diving below its SMA200 and CL breaking out.  If USDJPY were to join in, I’d seriously think about going long for 2160.  If it doesn’t, it’s hard to look at this as anything more than a stick save.

As I’ve said many times, the Fed wants a high USD without having to raise rates.  They have the high USD, but only only the expectation that they’ll have to raise rates.  They need higher oil prices in order to prop up stocks, but higher oil prices higher inflation which only increases the argument for a rate increase.

Maybe the only solution is to devalue the yen again.  It will hurt the Japanese (except for the exporters, which are the only constituents that matter to the BoJ.)  But, they’ve been down this path before.  It’s a compromise they’ve always accepted in the past.

Stay tuned.

UPDATE:  11:29 AM

Euro close coming up.  USDJPY hasn’t broken out.  In fact, NKD is breaking lower.  And, CL is weakening.  We might get another shot here at 2119.  I’d try shorting here with tight stops (VIX is still below its SMA200 and isn’t showing much of anything.)

Here’s a better picture.  This is a low probability trade, as these kinds of moves are generally reserved for first thing in the am or late in the day.

UPDATE:  11:36 AM

Never mind.  VIX just declined to play along.  I’ll go back to cash, which is where I should have stayed in the first place.  Still watching USDJPY.  If it breaks out, I’d want to reevaluate going long.

UPDATE:  1:17 PM

We’re testing 2134.72 for the umpteeth time today.  If it drops through, I’d want to be short.

While the white channel bottom has broken down, it’s 2134.72 that really matters.  It wouldn’t surprise me if it went sideways or bounced from here.  The white dot up at 2147 would get us back to green.

Be aware, though, that it might not last any longer than the previous dips.  USDJPY is now above the red TL and can easily backtest it and bounce higher any time they like. And, VIX is not exactly vulnerable to a bounce at this point.

UPDATE:  1:33 PM

Shorting here at 2134.61.  Still a very good chance of a head fake, so keep your stops tight.

The ES equivalent of 2119 on SPX.  Note the purple .618 and red channel bottom coming together at 2121.79 — probably about where VIX reaches 16.71.

VIX is important, of course, because 2119 will never happen unless VIX breaks out of this little channel.  So, watch out for the resistance at the SMA200 at 16.73 and the channel top itself currently around 16.85.

And, keep an eye on NKD and its horizontal support at 16300.

UPDATE:  2:29 PM

Covering here at 2135.16.  VIX is dumping again, apparently isn’t going to permit any downside — or at least not yet.  At this rate, there will probably be another try.  ES really looks ripe for a quick drop to 2121.79, but the window is closing.

UPDATE:  2:39 PM

SPX is safely back above 2134.72.  I won’t know whether they’re waiting until the end of the day, or intend to delay it until Monday.  But, it sure seems like there’s another leg down coming.  I want to move on to some other charts.  

So, I’ll leave you with a standing suggestion to short below 2134.72 and cover at 2119.  Set your stops where you’re comfortable, but don’t accept more than a point or so, or the 15 points you make on the short will be eaten up by however many head fakes occur between now and then.  More later.

If it bounces from here, instead, I’d be comfortable going long with very tight trailing stops.  VIX has support down at 15, and that doesn’t provide for much upside on SPX — maybe 2148 at the most.

UPDATE:  3:17 PM

Last chance for a sell-off today, but VIX is dumping again so it’s more likely to rise into the close.  As mentioned above I don’t see any problem with staying into the close as long as you keep trailing stops tight and watch out for obvious overhead resistance at 2140ish.  And, again, a dip below 2134.72 is cause to go short.

UPDATE:  3:52 PM

Closing the long position at 2140.93 as VIX is running out of steam and they don’t seem interested in breaking out just yet.

Otherwise, VIX would be diving, CL wouldn’t, and NKD would definitely not be going sideways.

FWIW, ES VWAP is at 2129.25, a few points below current levels.  I have a feeling Monday is a down day.  But, I wouldn’t hold long over the weekend.  Too much uncertainty.