The last comment I wrote in yesterday’s members’ section:

The reality is, I expect a very nice bounce here — with that 2030 level (1:54 update above) looking good for the next big move.  But, the headline risk has been pretty substantial lately.  As such, I wouldn’t carry any position overnight unless you have the means to hedge and/or monitor it closely.

The initial ramp job after the market closed was spectacular, with ES gaining about 23 points.  Then, the SNB peed in the punch bowl, essentially decoupling from the euro.  ES dropped 42 points in a jiffy, and is only up a few points because of the plunge protection team’s efforts — a rally of 28 points.

Is it legitimate?  No.  Does it make sense?  Hell, no.  Will it last?  Ah, that’s the question.  Probably not.  Here’s where we left off yesterday, with nearly every intra-day call working out beautifully.

A rally up to 2030 made sense because of the key Fib levels and channel patterns in play.  But, the Swiss just removed a big chunk of the carry trade architecture.  So, while their move increases the likelihood of ECB QE (why else would they hit the panic button like this?) it puts a dent in the portfolios of those who were short the swiss franc (CHF) as part of the carry trade.

I’d fade this morning’s rally at the first opportunity, with an initial target of the SMA100 at 2007, and a secondary target that .886 at 1986.35 that we didn’t quite tag yesterday.  I suspect they (and by they, I mean every central banker) will be working overtime to contain the damage.

I say “contain,” because lower prices were already in the script — just not yet.

continued for members…

As a result of the SNB’s actions, TPTB have all the cover they need for SPX heading down to the SMA200 (currently 1986.)  And, now, some — but, not too much — of the troublesome carry trade will be unwound.  It’s not that they don’t want global markets moving higher in unison a la carry trades.  It’s just that things got pretty overheated at the end of the year, with overshoots galore.  This lets a little air out.

A decline to the SMA200 would quiet the critics that the “market” is heavily manipulated (it is) and the big banks and hedge funds are still playing games (they are) and that central bank QE is blowing new bubbles left and right (duh.)

And, of course, the SMA200 is one of the best floors one can put under a market.  Especially if it coincides with the ECB’s QE announcement on the 22nd — only a week away.

UPDATE:  10:25 AM

The PPT is in fine form this morning.  I’d take profits on that short position here at 2007ish and see whether the bounce can keep going.  If it reverses off the white channel midline, I’d look at going short again.

UPDATE:  10:35 AM

Primary action coming courtesy of VIX and USDJPY.  VIX’s rising wedge broke down and backtested yesterday, which made me bullish going into the close.

It also tagged a TL off the mid-Dec highs.  This morning’s monkey-hammering courtesy of the Fed/Citadel cabal has provided a bounce for SPX — currently about 2012.  The white and purple targets are suppositions based on the SPX’s SMA200 tag.USDJPY magically reversed as needed, but is running into resistance at the falling white channel midline.   Maybe this is what they have in mind?  If SPX can hold the backtest of the small rising white channel’s midline here at 2010.13, I suppose it’s worth trying a long position with tight stops.

But, oil has reversed back below the .786 at 49.52, which is bothersome for the bulls.

UPDATE:  11:12 AM

The midline didn’t hold.  If the channel bottom also doesn’t, it’d be worth taking on a short position again with this morning’s targets still in play.  Note SPX is back below the SMA100.

UPDATE:  12:40 PM

The channel bottom didn’t hold, and SPX just completed a second right shoulder on a small H&S pattern that targets 1975ish.

VIX is pushing higher, and CL is having trouble launching.  Our downside targets are looking better by the minute.

A better look at the downside.  I’ve added a harmonic grid (in white), the 1.618 of which intersects with the SMA200.  Note, however, SPX just reached the white .886.  So, a bounce here to backtest the H&S neckline at 1997ish wouldn’t be a big surprise.