ES just tagged our next downside target of 2810.98 — a good tag, if you’ll pardon the bilingual pun.  It came within 3 points yesterday before a sudden VIX beatdown and rally in oil sent it soaring 24 points into the close — par for the course for this “market.”

Recall from last week’s US Dollar: Capitulation that we listed 2810 and the bottom of the rising red channel at 2788 as targets.

ES continues to hold the white channel bottom as it backtests the red channel top. If it breaks down, there’s support at the SMA10 at 2810.60 and the red channel bottom around 2788.

By delaying the mini-correction, ES is able to tag the bottom of the rising red channel at 2810.  Pretty clever.

If it can hold right here, we should see SPX tag our 2808.16 target.  If the channel bottom doesn’t hold, then the larger white channel midline (2790ish) comes into play.  If the midline doesn’t hold, then watch out below.  The 2.24 at 2703 is in desperate need of a backtest.

continued for members…

The bigger picture shows the potential if the red channel bottom doesn’t hold.

The SPX equivalent…still liking the white midline/red TL at the SMA20 if 2808 doesn’t hold.

I suppose we’ll know whether additional downside potential exists by whether/when VIX reaches 16.13-16.29.  If it follows the rising white channel, it could take until Monday.  Just thinking out loud…the prospect of weekend risk would likely flush out a lot of speculators, making it easier/cheaper to accomplish the next smackdown.CL popped — on a huge inventory build (+6.78mm vs +900k expected), of course.  And, RB did what RB does a lot lately: soared on a tiny inventory draw after rallying non-stop on inventory builds. And, we’re still waiting for the last little spurts by USDJPY and EURUSD to facilitate DXY reaching the purple channel bottom at 87.26-87.60ish.  As we’ve discussed before, it could take quite a while if they want to drag it out.

But, with ES having already tagged its channel bottom and now bouncing, TPTB might need those moves in the currencies to force SPX down to its channel bottom. ZN has reached 121’100, a smidge above our 121’000 target.  After fine-tuning that falling white channel, I’m adjusting the ideal target to 120’315.  Note that while it continues to threaten, TNX has yet to pop up to its 28.56 resistance.  Remember, it could happen any moment or wait 3-5 months.

While we’re on the topic of timing…remember that ZN, DXY and EURUSD are in the same boat.  EURUSD could pop up to 1.2597 now or it could wait until the red channel top reaches 1.2597 in Apr-Jun.  There’s even the possibility that the top is already in since the pair has reached the red .382 at 1.2515. The falling red channel, while perfectly legitimate, was constructed rather sloppily.  You could argue for an adjustment in either direction, which could dramatically change the date of the intersection with 1.2597.  I continue to think the most important signal will be DXY tagging the bottom of its rising purple channel.  The exact bottom of the channel is currently at 87.348, slightly above the .500 Fib at 87.259.  But, because it’s a rising channel, it’s slowly pulling away from that Fib.

The strongest support would come at an intersection of those two and the falling white channel.  But, we can’t get all three at the same time any more. So, I’d let the channel and/or Fib tag be our signal.If we’re lucky, it’ll coincide with the EURUSD tag and we’ll get confirmation of a reversal.  If we’re really, really lucky, it’ll also coincide with the TNX/ZN tags and we won’t be in limbo for weeks or months.

One interesting observation, DXY’s falling white channel and rising purple channel intersect on Feb 14, the day January CPI is released.  Given the large YoY and MoM increases in gas prices (EIA says 8% YoY and 3.3% MoM, but the chart says it was much more) we should see an increase over December’s 2.1% mark.

Stay tuned.

UPDATE:  12:05 PM

Here we go again.  SPX just broke out of its most obvious falling channel, and ES broke out of an adjusted falling channel.  The primary culprits are VIX and CL.  Once again, we’re reminded of why it’s become a huge pain in the ass to trade SPX.  ES reached support at its .618, and apparently that was supposed to be good enough for SPX.  Or….maybe SPX will come back at the end of the day or tomorrow morning to tag its .618.  Or…who knows.

All I know for sure is that DXY and EURUSD are closing in on our targets.