The overnight session in USDJPY nearly reached our next target — the white .618 at 2019 (formerly red, and the key .618 at 120.11 is now drawn yellow.)
SPX reached our downside target offered last Friday [see: CIW Jan 9, 2015] a bounce in USDJPY would produce one in SPX.
One strong scenario would be a dip to the target we mentioned yesterday: the gap at 2029.61. It’s roughly the purple .382 and would be a nice head fake.
And, as updated yesterday:
We’ll find out shortly whether or not it’s a head fake. I suspect SPX might be in for a tag of the .618 at 2019, but the gap is closed. So, we could get a bounce at any time. USDJPY plunged quickly, but is holding above the recent lows. If it bounces off those lows, SPX should bounce up and backtest the moving averages (2045ish) at least.
With the eminis showing +14 at present, it appears SPX has an excellent shot at testing those moving averages — the 10, 20 and 50-days, all in a tight spread now of 2045.66-2047.23.
One potential game changer is oil, which overnight moved through and is now rebounding back to the TL from 1998 we identified last week [see: Update on CL Jan 7.] If the decline is arrested in a meaningful way, it should provide a strong boost for the algos.
UPDATE: 9:40 AM
SPX just sliced through the SMAs and tagged 2054.75. It should top out between here and 2059 — the .886 of the drop and a backtest of the rising white channel. I’d be very careful about chasing it any higher.
UPDATE: 10:15 AM
Nice reversal for SPX so far off its earlier highs. Note the sensitivity to USDJPY — the thin purple line.
It always amazes me how sensitive SPX is to upside moves in USDJPY, now matter how minor. In the old days (pre-2013!) moving averages mattered. Today, just a hint of recovery for USDJPY is enough to blow through them like they weren’t even there.
IMHO, this morning’s rally is overdone. But, the algos are propping it up. As such, I suspect any initial slide will be limited to a backtest of the SMAs — unless USDJPY reverses soon. But, odds are its reversal will come after the close and not affect SPX. Keep an eye on CL, which would work just as well in providing the levitation.
UPDATE: 12:45 PM
I underestimated the reversal. Instead of the SMAs, SPX just conducted a backtest of the broken TL off the mid-Oct lows. It should bounce here at 2037ish, as long as USDJPY will play ball.
UPDATE: 2:20 PM
USDJPY did drop further, in fact right to our earlier target.
continued for members…
CL is back above the key TL…
Combined with a SMA100 tag for SPX, we should see a nice bounce here. How far will depend on many factors, but I’d say at least back to the .618 at 2020. Beyond that, the rising white TL comes back into play.
But, as before, stocks are hardly out of the woods. While USDJPY’s bounce will help, it’s likely not done declining.
The falling channel is gaining credibility, and 116.68 is looking better and better. The key question in my mind is where it takes SPX — with my best guess being the SMA200 (currently at 1962ish.)