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Much has happened since our bottom call on Feb 11.  USDJPY shot up from 110.97 to 114.87 in 4 sessions.  CL spiked 31% in 6.  And, SPX tacked on 6.7%, climbing back on top of some key overhead resistance.

But, the underpinnings of the rally are crumbling.  USDJPY has lost nearly 88.8% of its gains — calling the yen carry trades health into serious question.CL — almost half of its (despite the rumors which sent it soaring being disproved.)  For its part, SPX has dropped a mere 20% — propped up primarily by intra-day CL and NKD ramping.

As the algo drivers continue to tumble, we can expect SPX to at least test our downside target floated earlier this week, and possibly drop through it.

continued for members… Look for SPX to test the gray .886 at 1907.25.  And, should that fail -which is my base case — then the SMA20 at 1897.34 is our primary target.Note that 1897 is a mere 9 points above the neckline of the big, purple H&S Pattern at 1888.  This is the line in the sand, folks.  If they lose the neckline again, then we should see some serious declines.

UPDATE:  9:35 AM

SPX just hit , which is close enough for me.  Besides, CL and ES are bouncing.  I’d revert to cash here and let the bounce play out.There is almost certainly more downside.  Given the speed of this drop, the red .382 at 1894.68 is looking good.  And, USDJPY and CL have further to drop.  Just don’t know how big this bounce could be.

I’d go back to short on any drop through 1898.52 and grab the extra few points.

UPDATE:  9:51 AM

Just pushed through the .382, probably going to test the SMA10 at 1892.27.  USDJPY has bounced back above the red channel bottom and ES is about to test its SMA10. UPDATE:  9:57 AM

Back to long here, as ES just tagged its SMA10.  SPX reached 1893.12, so it could push a little lower.  Watch your stops, as a drop to backtest the purple neckline at 1888ish wouldn’t be surprising.This doesn’t have a feel of being finished.  But, if they ramp USDJPY and CL enough, it could be.  My biggest concern is CL, which stopped short of a full backtest of the broken red channel. UPDATE:  10:13 AM

I’ve adjusted the falling red channel to reflect this morning’s more abrupt drop.  ES’ SMA5 10 has caught down with it, so we could see selling pressure resume here even though SPX hasn’t done the same.  Watch your stops carefully.UPDATE:  10:18 AM

USDJPY declining further.  Back to short here, with a target of 1889.50 or 1887.83.UPDATE:  10:26 AM

Algos are digging in their heels here.  I’d revert to cash and wait on the sidelines.  Yes, probably leaving money on the table, but it’s just a little too squirrely for my tastes at the moment.The drop to 1888, if it’s going to happen, would work better at around 11:10.

UPDATE:  10:30 AM

Not a moment too soon…

UPDATE:  10:40 AM

Looks like SPX will probably bounce up and tag its falling SMA5 20 somewhere between 1900 and 1904.  Still the potential for another leg down, so I’m inclined to stay on the sidelines until we see how it reacts.

The elephant in the room is USDJPY, which is nearing its Feb 11 lows.UPDATE:  10:51 AM

CL seems to have maxed out at the next higher white channel line.  But, now it’s picking up support at its SMA20.  I was prepared to go short again at the dropping SMA5 20, but I’d like to see CL capitulate first.  Now appears they’re trying to get SPX riding higher — or, at least stabilized — on the rising SMA5 10.  We’ll watch closely when it actually tags the SMA5 20. UPDATE:  11:08 AM

SPX has tagged the SMA5 20, but is being propped up at the SMA5 10.  Has to break one way or the other…. I imagine the central banks are throwing many, many billions at the futures markets right now. UPDATE:  11:15 AM

Shorting here, a hunch that this could be the last leg down to 1888ish.  With 15 minutes to go in euro markets, who wants to be long at the close?CL breaking down again, but is ready to jump higher if need be.USDJPY pushing to new lows, looks determined to test 110.98.UPDATE:  11:28 AM

SPX pushing back above SMA5 10 on CL rebound.  Back to cash. UPDATE:  11:40 AM

Algos appear to have things well in hand, now.  USDJPY and CL are both pushing higher, and SPX is glad to tag along.  The red channel top at 1904.50ish should be the next stop higher, with the falling SMA5 50 likely to reach it around 9:40ish.UPDATE:  11:47 AM

This is where it should reverse if it’s going to.  But, CL just spiked higher to try and get SPX up past resistance.  Shooting for SMA5 50 at 1907.50ish or falling red channel top at 1911.  Hold long.UPDATE:  11:55 AM

USDJPY back above red channel bottom, closing in on .886 at 111.42.  Needs to hold the channel bottom.  SPX looks like it’s headed for 1911.70, but could reverse at SMA5 50 at 1907.50ish.UPdate:  12:07 PM

SPX just tagged the top of the falling red channel.  I’d revert back to short here with the initial target the red channel midline at 1904.25, 1902.50 after that.  Tight stops recommended, as the SMA5 100 at 1916.82 is also a tempting target. UPDATE:  12:45 PM

I’m going to cover the short and go long here. If it can get up past the SMA5 10 at 1906.67, it’ll break out of the falling red channel.USDJPY is back above the red channel bottom, and NKD has backtested the gray midlilne.  The real question, though, is CL — which has just about reached its red .618 retrace of the drop from yesterday morning.  It will either tumble after the close, or it decided that this morning’s dip was close enough a backtest of the broken red channel.  It’s hard to argue with that, as the channel placement is not all that certain (lots of pushes above and below the presumed upper/lower bounds.)

By adjusting the channel just a couple of pennies, it looks like a solid backtest and no further downside is needed.  Be very careful if you short it in here.  Any downside which might otherwise be expected might be sacrificed in order to keep stocks on the rise.UPDATE:  1:13 PM

Not sure why, maybe the NKD SMA5 100, but everything is backing off here.  Might just be going for a SMA5 10 backtest, in which case I’d go long again.  But, for now, I’ll step aside and go to cash again.

   UPDATE:  1:18 PM

Backtesting the SMA5 10. Decision time.  Probably worth a shot at a long position, but with very tight stops.UPDATE:  1:27 PM

Really umeasy about this bounce working out.  I’ll bail on the long position and revert to short on any drop through the SMA10 — currently at 1908ish.UPDATE:  1:35 PM

Now looking like the SMA5 100 will be lower than the 1:05 PM high at 1912.68 if/when SPX reaches it.  We have 5 waves higher, maybe all done. Back to cash while it sorts itself out. UPDATE:  2:10 PM

SPX suddenly broke out past the SMA5 100 on CL and USDJPY rejoining their broken rising channels.  As chart patterns go, it’s dirty pool.  But, not unusual amongst manipulation techniques.  I imagine SPX will reach the SMA5 200 by the close.  Should get a backtest to the SMA5 100 after tagging the top of the white channel. UPDATE:  2:27 PM

SPX just tagged the red midline.  Shorting here for 1915 and then a push to red SMA5 200.Note that ES just tagged the white channel .236 line.And, USDJPY just tagged its SMA5 200. Tight stops on this one, as SPX is positive again and there’ll be a lot of short covering here.

UPDATE:  2:40 PM

I don’t think they’re going to wait.  NKD and USDJPY are popping through resistance.  Back to cash here, and we’ll see if there’s a pullback to go long with.UPDATE:  3:11 PM

SPX just reached our upside target at the white midline.  Didn’t get much of a pullback in which to go long, so I’ll take a crack at shorting here.UPDATE:  3:20 PM

It doesn’t appear as though SPX is going to acknowledge the white midline (except maybe to backtest it.)  I’d dump the short and go back to cash here.UPDATE:  3:44 PM

CL finally actually tagged its .618 Fib, so stocks are wondering if the ramp is over now.  It probably won’t fall back until after the close — if it does.  Shorting here, though I don’t expect it to go anywhere.  Maybe the SMA5 200 at 1924? 

Hold short overnight only if you can hedge or watch it like a hawk.  Other markets around the world are likely to take this as a very bullish reversal. UPDATE:  3:53 PM

Not allowing even a token sell-off at the close.  Back to cash for the night, unless you can hedge it tightly.