Are The Powers That Be losing control, or are they merely fine tuning the “markets” in preparation for the Fed’s rate hike next week?  Conventional wisdom says equities won’t fare well in a rising rate environment.  But, how do the currency pairs figure into that assumption?

We’ll take a quick look at the big picture this morning, focusing in particular on currency pairs and oil.

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These are the charts I’ve been working on this morning.  I’ll add commentary as we go.

We’ll start with oil, which has broken through a great deal of support, but continues to bounce when needed in order to boost the algos, as it’s doing this morning. It’s doing so as cover for USDJPY, which fell off a cliff last night and is approaching the SMA100.It drove ES lower, whereupon it completed a sizable H&S.  However, it got a nice bounce off the neckline and SMA50 once CL and USDJPY started spiking. While SPX would certainly be entitled to a tag of 2048.22 (the white .886) I suspect they’ll try to support it at the red TL – roughly 2056.  We’ll hold short on the open, and look for a bounce there.

UPDATE:  9:35 AM

SPX just reached the red TL.  We’ll close the short here and go long for the bounce up to, initially, the SMA200 at 2063.59.UPDATE:  9:39 AM

Poking through the SMA200 here and tagging the 5-min MAs. It could pop up and tag the 5-min SMA100 or higher.  We’ll give it a little rein.

UPDATE:  9:43 AM

This seems like a good place to take profits and try a tentative short.  If it pops through that TL, I’d cut it loose, as the daily SMA20 and 5-min SMA200 would likely be its next destination.UPDATE:  9:46 AM

Cutting loose the short here at 2066.88.  Back to long as detailed above, with that same white TL as the guideline for downside stops.UPDATE:  10:03 AM

CL is making a show of breaking out in order to prop up SPX until its 5-min MAs come along to support it.  If that’s the plan, we’d likely be in for a long, boring day of algos inching SPX higher by .01/minute for the rest of the day.  And, it might just be the plan.

I don’t see them allowing that H&S to play out unless [tin foil hat alert] the ultimate plan is to throw enough of a tantrum to dissuade the FOMC from raising rates next week.  It’s happened before, and it wouldn’t shock me if it happened again.

USDJPY, meanwhile, is keeping its options open.  It can always dip down to the SMA100 or 200 if SPX needs to be contained.UPDATE:  10:11 AM

SPX just shot through the SMA200, but CL has topped out at that white TL.  Assuming USDJPY will put the brakes on, so I’d take profits on the long position here and see what happens.

I’d not short just yet, b/c I think there’s still a good chance of a pop up to the purple .618 at 2077.92.  This is more of a “bird in the hand” move than anything else.  I’d first want to see CL reverse below that TL and/or USDJPY reverse off its MAs. I think ES and SPX would like to reverse here, but CL is spiking higher and USDJPY being dragged along.UPDATE:  10:34 AM

On CL’s breakout, SPX just slipped past the .618 to tag the SMA10.  I’d short here, but close it quickly if CL pops above the red channel midline.  Objective is the daily SMA20 (2072.93) or wherever SPX meets the 5-min SMA10 — currently at 2072.32. UPDATE:  10:45 AM

CL reversing nicely……but, USDJPY is picking up the slack.  I expect it’ll reverse at 122.25ish off the 5-min SMA50 (purple) which would give SPX a push lower.  But, we’ll see.   That SMA10 is approaching quickly. UPDATE:  10:54 AM

I’ll close the short here and go to cash.  Probably leaving money on the table, but USDJPY looks like it might bounce here.  If it drops through that red TL, I’d definitely reconsider.  But, with the SMA20 just below at 2072.93, I’m not so sure it’d be worth it. I show us up over 1% on the day.  At this point yesterday, we were up 1.09% after two trades.  Four trades later, we had reached 1.25%.  In fact, three of those trades were at small losses where we closed out positions that had initially looked promising, but were subsequently trashed by USDJPY or CL.  Bottom line, I should have quit after that second trade.

USDJPY is slipping now, but is probably just facilitating whatever backtest TPTB have in mind for SPX.  It’ll probably dip down to backtest the SMA100 early tomorrow morning, at which point it’ll rebound just in time for the cash “market” to open.UPDATE:  11:15 AM

SPX dropping through the SMA200 is a nice development.  I’ll play along on the short side.  Could be setting up an IH&S here.  Watch out for a bounce at 2068ish — which is a possibility if CL bounces at a TL of support. If SPX bounces at the 5-min SMA50 at 2068.29, we’ll go to cash.  But, if it slips further after the euro close, when we’ll get some nice additional gains.  The 5-min SMA100 at 2065.77 and the daily SMA200 at 2063.59 would both be good targets.

UPDATE:  11:46

SPX just pushed below its SMA200 and is closing in on the red TL again.  UPDATE:  11:49 AM

Back down to the TL, and ES is back very close to its neckline.  I’ll take profits here and go to cash as USDJPY is starting to firm up. UPDATE:  11:58 AM

I think we’re going lower, perhaps to 2048.22 or at least to the white channel line at 2052ish.  But, CL and USDJPY are bouncing, and there’s just no telling when/if they’ll stop. UPDATE:  12:29 PM

USDJPY just tagged its SMA200 as SPX tagged its SMA50.  Both should bounce, so I’d try a long position here. I’d keep stops very tight on this position, as CL is still slipping.

UPDATE:  12:35 PM

CL still slipping.  I’d close out the long position and go to cash here at 2043.26. UPDATE:  12:52 PM

SPX dipped to the red .786, which would be a legit turning point.  The problem is, I don’t see a lot of bouncing going on.  USDJPY and CL are both still looking weak.  So, I’ll try a short position here on the backtest of the SMA50.Note that I drew a falling channel above (white) that would contain the low from a few minutes ago. It doesn’t impress me.  The better looking channel is the purple one that would suggest the red .886 and white 1.272 (2029ish) is today’s actual downside target.  I’ll give it a try.Could USDJPY dip below its SMA200?  Well, yes.  Consider DX’s chart.  While the rising red channel is a possibility, I’ve been fmore ond of the SMA100/200 at 96.949ish.And, EURUSD still has a ways to go.UPDATE:  1:19 PM

The SMA50 is officially backtested now.  But USDJPY, DX and CL are creeping higher and EURUSD is slipping just shy of the SMA200.  On a positive note (for us) NKD has slipped below 19000.  Watch your stops closely.

Note the rising white line running through the current bar below.  That’s the bottom of the rising white channel from 2012.  USDJPY can obviously overshoot it intraday, but it could also provide quite a bounce.

Note the thin white line running through the bottom right corner — the bottom of the rising white channel.  That would be a hell of a close — stopping out bulls because it’s just below the recent lows.UPDATE:  2:06 PM

Do or die time for the bears.  The SMAs are coming along to scoop SPX higher unless CL or the currencies make a move.  EURUSD is pretty much to the SMA200, though USDJPY could easily fall further intraday.   Note that CL’s falling red channel bottom is still a good potential target down at 36.5ish.UPDATE:  2:11 PM

SPX might be heading up to tag the purple midline (2055ish) before reversing down to the purple channel bottom either late in the day or tomorrow morning. I’ll take a long position here on the move through the SMA50.I would love to switch back to short for the last 16-26 points, but need to see some help from USDJPY or CL.

UPDATE:  2:18 PMBack to short on continued weakness in DX, CL, ES and USDJPY.  This could be a head fake, but DX keeps ticking lower.  It hasn’t pushed up through the 5-min SMA10 for hours.Watch ES — either mounting a defense or about to break down.UPDATE:  3:00 PM

Looks like we’re going to get a pop here.  DX just topped the SMA10.  Back to cash. UPDATE:  3:22 PM

Looks like SPX is breaking out.  I’ll try a long position here.  There’s a decent chance that ES will try to regain the neckline (about ES 2052.44 or SPX 2054ish) by the close in order to negate the H&S Pattern. UPDATE:  3:40 PM

This bounce seems to be fizzling out.  I’ll close the long position here and go to cash for the night.  For those who can hedge or watch their position closely in the after hours, I’d hold short.  Otherwise, there’s nothing wrong with cash.