The FOMC punted on raising rates yesterday.  As expected, the US dollar tumbled and the USDJPY plunged.  Only very aggressive dollar buying that started around 3am ET halted the pair’s decline.  Note that this is likely the last gasp for the USDJPY and the yen carry trade.  If it can’t rebound here at the .886 Fib retracement of the rise from 100 to 126, then it’s a long way down.

The last time USDJPY traded at 100, SPX was nearing 1823 — the 1.272 extension of its 2007-2010 drop from 1576 to 666.  By all rights, SPX should have reversed there.  But, USDJPY broke out – up 26% over the next 21 months.  It dragged SPX 311 points (17%) higher.

But, much to central bankers’ chagrin, stocks topped out when USDJPY did.  Had oil not stepped up as the new market manipulation tool of choice on Feb 11, stocks would be back down to those Dec 2013 lows.SPX remains on track for our primary downside target, though there are a few potential interim stops along the way.

continued for members…

Although USDJPY is positioned to rebound at this, as key Fib level, I believe CL will drive most of whatever gains we get from this point forward.  Note that it has gradually fallen to a point of potential channel support at the purple midline.UPDATE:  9:32 AM

First potential bounce point for SPX — the .618 at 2062.06.  If it doesn’t hold, then the next potential support is the .786 and white neckline at 2047.28.UPDATE:  9:57 AM

SPX is coming up on our next target at 2047.28.  This would be the bottom of the white channel, so a bounce is also quite possible here. It would put a punctuation mark on the demise of the white H&S Pattern that wasn’t allowed to play out.   And, with USDJPY at and CL nearing their downside targets, it wouldn’t surprise me if 2047 were the line in the sand.  I’d put the odds at somewhere near 50:50.Note that a continuation of the falling white channel indicates 2010-2020 won’t happen till the middle of next week.  However, it’s entirely possible that the channel will expand, as indicated in gray, enabling the rest of the decline to come sooner.Note that CL has reached our next downside target (17 hours late) and is on its way to major support at 46.34.USDJPY was backtesting its falling white channel for a while, but is now dipping back within it — signaling further drops in SPX have been “authorized.”A quick peek at VIX for those who are interested…UPDATE:  11:02 AM

CL reached our 46.34 target more quickly than expected, which leaves SPX in a bit of limbo.  Unless CL’s rebound is muted, or USDJPY starts falling back towards its lows, then SPX is going to have trouble getting back down to 2046-2047.  My money’s on CL, as USDJPY is in survival mode at the moment.  Watch your stops, but know that we should get another leg down, ideally between 12-12:30 ET. UPDATE:  11:51 AM

Still looking good for a 12-12:30 tag at 2046.16 – 2047.28.  ES’s need to tag 2036.87 might mean slightly lower on SPX, say 2045ish.  CL might push to a slightly lower low, or we could see USDJPY do a quick swan dive to 103.64 or lower. Any FX traders want to pick up 40 quick pips?UPDATE:  12:17 PM

It appears as though we’re going to tag the SMA5 50 (now at 2063.86, falling fast) before the next leg down.  This could delay reaching 2046 until 2pm or so — assuming that it happens.  So far, CL and USDJPY continue to restrain themselves.This will also give ES a chance to reach its SMA5 200 at 2055ish.

UPDATE:  12:25 PM

USDJPY just broke out instead of reversing lower.  This will take SPX up through its white channel midline and opens up the possibility of a tag at the SMA5 100/200, now at 2072.  This morning’s gap close is at 2069.80.

Either 2046 is off the table for now (or seriously delayed as discussed above) or this is one hell of a head fake.  It could be, as NKD has reached channel and SMA5 200 resistance at 15565.  UPDATE:  12:46 PM

Gap closed, USDJPY reached SMA5 200, and CL reached an important channel line.  Should reverse very soon if it’s going to.  Traders might wish to revert to short here, with an obvious stop at the SMA5 100/200 just above. UPDATE:  1:01 PM

USDJPY spiking higher again.  They’re definitely going for the SMA5 100/200 mentioned above.  If it doesn’t reverse here, then the SMA50 at 2077.21 is next up.  It crosses the white channel top around 2:35 ET. UPDATE:  1:58 PM

SPX has reached the bottom of the rising red channel — a result of USDJPY going sideways for the past 30 minutes.  Note that the top of the red channel will intersect 2077 around 2:40, and certainly appears to be the goal.  There’s a very good chance that SPX bounces here, so traders should cover on any bounce, short or remain short on any drop through the channel bottom. UPDATE:  3:35 PM

For anyone playing the earlier bounce, this is where I’d get off.  For those interested in participating in another leg down, this is your (admittedly scary) entry point.  As usual, don’t stay short overnight unless you can hedge and/or closely monitor your position.