Futures were unimpressed with Yellen’s prepared remarks this morning, with ES paring 16 points from its overnight highs.   Still, we would all do well to remember that “markets” can do some awfully strange things on Fed testimony days.  Traders won’t like Janet’s lack of capitulation on rate rises.

But, indices often rise on these days as algos go into overdrive to maintain the illusion that all is well and the FOMC doesn’t, as a matter of policy, ever make mistakes.

Case in point: the focus of yesterday’s post — the Nikkei futures — dipped well below the key TL from 2013, but have since rebounded exactly to the neckline.continued for members… Today is shaping up as one of those — with CL making lower lows……and, USDJPY forming a triangle that should retest its base. Note that ES’ little Flag Pattern resides in the lower right corner of a larger Flag Pattern that started back on Jan 19.    The key is that ES — unlike SPX — is back above the neckline of its large H&S Pattern.SPX has a pair, also, but they don’t come close to overlapping. SPX should get an initial bump to match the futures, and after that I suspect it’ll be all algos all day. If CL and NKD dip below their support and USDJPY tests the triangle base, SPX should dip to the white channel midline and SMA5 200 around 1852.44.

If the Flag breaks down, the .886/1.618 down at 1826-1827 remains untagged.

Watch ES, also, as it is likely to test the rising red TL in the chart below.I’m not a fan of trading on Fed testimony days. As such, I’m going to focus on other charts today and will revisit SPX after Yellen’s testimony.

UPDATE:  10:32 AM

SPX is up 28 points on CL and USDJPY algo action.  CL, which made new lows this morning, has since spiked 6.7% in an hour.And, at this moment, USDJPY is back in the green and seemingly breaking out of its triangle. As a result, SPX has broken out of both the Flag Pattern and the falling white channel.  More importantly, it is back above the small (red) H&S Pattern targeting 1797.  The neckline of the larger H&S (purple) targeting 1605 is up at 1886.UPDATE:  1:32 PM

The grilling is over.  Same crap, different day.  I doubt bulls will find much to get excited about, but today’s about what algos rather than fundamentals will produce.

I’d short here at 1867.63 for a drop to the purple channel midline around 1859 — also the SMA5 100.  If that fails, then the SMA200 at 1850ish — also the falling white channel midline — is the next support.  Tight stops are advised, as USDJPY and CL are both providing support and NKD hasn’t yet broken down. UPDATE:  1:40 PM

NKD and CL are bouncing, so back to cash at 1867.91.  I’d look for other opportunities to short, but odds are any decline won’t come until late in the day — if then.I think ES tells the story best: a backtest of the SMA200 and red .618 either at/after the close or in a gap down tomorrow morning.  At 1856, it isn’t much to hope for.  And, as mentioned earlier this morning, it’s less likely on a day when the FOMC is trying to make us believe they have the “market’s” back.

SPX’s big neckline is only 17 points away, now, at 1886.90.  Though, if reality asserts itself, investors will realize Yellen didn’t do anything to soothe “markets” and will overwhelm the algos to the tune of SPX 1827 in the morning.

UPDATE:  3:53 PM

After all’s said and done, it looks like SPX will close down on the day.  The target appears to be the .618 at 1848.76, which would be close to even.This would leave the rising purple channel intact, but no breakout.  FWIW, USDJPY and NKD are both closing ugly, though this could change after stocks close. More later.

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Just a reminder, I’ll be off the next 4 days starting tomorrow.  I might be able to post first thing in the morning, but that’s about it.  I plan to resume normal daily coverage Wednesday, Feb 17.