If At First You Don’t Succeed…

SPX has seen two bullish IH&S Patterns busted over the past two weeks. They came close enough. The latest even completed last Thursday before fizzling after the overnight ramp fell apart under scrutiny of the mounting risks in the markets.

But, there’s nothing like a 1%+ gap higher over a weekend when investors are already on edge, to complete an IH&S — which is exactly what we’re facing this morning. While the French election results were a relief to the status quo, there are still other significant risks out there. This week.

Sure, they can hammer VIX back down below support (-32% in the past week!) and break USDJPY out of its latest bearish pattern; but, will the breakout hold this time? Last I heard, the Korean situation hadn’t gone away, and the US government still faces a potential shutdown Friday night.

continued for members…

This morning, it’s all VIX and USDJPY. SPX shouls have no trouble completing the yellow IH&S we had mostly forgotten about after even the red one was busted last week.

Futures are currently up about 23 points, which will easily clear the neckline at 2368.38. If SPX can hold the neckline, the yellow pattern points to 2430. Note the white dot up there at 2422 from several weeks ago — the last time it looked like SPX might complete an IH&S.

From a Fib standpoint, the latest target is pretty much in no man’s land. But, at this point, TPTB are just looking to prevent the falling white channel from continuing. More importantly, they’re trying to reestablish the breakout of the yellow channel that failed back on April 11 and backtested on the 20th.Hence, the breakout in USDJPY. Note that will SPX has again broken out past the yellow channel top, ES still remains below its. There was a moment of stop running this morning (2376.75 versus the 2375 Apr 5 high) so the red Fib pattern is technically kaput.Note that ES’ IH&S falls closer to its 1.272 extension, which makes a retracement at the purple .786 (2383.18) the most likely pause along the way (if there is one.)

If SPX and ES were to slip higher for the rest of the week, it shouldn’t be that difficult to reach their respective .786 Fibs by Friday. That way, if there’s a shutdown for a few days, they would have a little room to react without the IH&S patterns and broken falling channels being affected.

For SPX, the path would be a rise to 2384, drop to 2365 or 2352, then continued rise to 2430. For ES, it would be a rise to 2383, drop to 2350 or 2360, the rise on up to 2428.

Last, note that CL is taking advantage of the action in equities to slip closer to our 48.17 target. Of course, it would have to poke through the SMA200 first. But, as we saw in March, the need to register lower inflation figures trumps such technical niceties.UPDATE: 10:32 AM

SPX could backtest the neckline as the SMA5 20 approaches in a few minutes. It looks to be about 2368.40 around 10:40. If, for some reason, the neckline doesn’t hold, the next line of defense is the yellow channel top currently at 2363.

While a backtest of the white channel would ordinarily make perfect sense, I don’t hold out much hope at this stage. I suspect they’ll hold that in reserve for any fireworks later this week or next.

UPDATE: 12:05 PM

Watching the paint dry here on the neckline backtest, it occurs to me that another scenario, which would allow for the various worries to be acknowledged, would be a backtest of the neckline and yellow channel top around 2366 late Wednesday or early Thursday.

12:15 PM

Of course, if we’re down to 2366, it might make sense for SPX to close the gap created this morning. Last Thursday’s high was at 2361.37.UPDATE: 2:11 PM

Despite VIX’s continued meltdown, SPX continues to struggle a bit. According to ES’s falling red channel, SPX is either about to break out or might finally be in a position to make another little leg down. The neckline is at around 2367.80 at the end of the day. If VIX dips below 10.90, however, look for SPX to break out past the white channel midline. UPDATE: 3:55 PM