If Bad News is Good…

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First, a little Q&A.

Q: How high did oil go yesterday? A: As high as it needed to in order to produce new highs.

It was almost laughable as every time SPX started to lose a little momentum, CL spurted just a little higher. In the end, it spiked 6.7% in less than 12 hours from the overnight lows — the equivalent of 1,250 Dow points!This hasn’t happened since, oh, last week when it shot up 7.6% in 24 hours [see: The Not so Invisible Hands Guiding the Market.]

The question today is whether the “market” will focus on the atrocious economic data just released (big misses in PPI and retail sales), CL’s continuing levitation or USDJPY’s overnight plunge.

continued for members...

My better half is vacationing with a girlfriend this weekend, so I’m on Dad duty this morning. I’ll be out for the next hour or so. But, here are some charts to chew on.

We finally have a serviceable channel for SPX to go with the one that’s threatening to break down in USDJPY.

ES suggests a sell-off of 5-6 points if the broken white channel (flag) gets backtested, which would equate to about 2180 for SPX. If that doesn’t hold, the purple channel midline at 2173.63 looks like a good target. After that, we’ll see. I’m leaving my downside targets from yesterday just in case.

UPDATE: 11:40 AM

I’m back. SPX bounced at 2180.47 this morning, pretty close to our 2180 target, and got up as high as 2186.28. A moment ago, it dropped through the SMA5 10 for no particular reason. It doesn’t typically do this without strong channel support (maybe down around 2182ish) unless it’s targeting lower prices. I’d short it here and see if we can’t get some downside going.

If, in fact the rising purple channel is correct, then a decline from here (potentially to higher lows) is a gimme. The question is whether we get all the way to the channel bottom at 2156, or stop somewhere short of that such as the midline at 2172-2173. Note that the old standby, the SMA5 200, is at 2181.50.

UPDATE: 12:11 PM

Tossing around some ideas for targets… There’s a good chance we’ll get at least a bump when ES reaches 2177.50 — a TL off Wednesday’s lows. It roughly equates to SPX’s SMA5 200, now at 2181.59.

UPDATE: 2:25 PM

SPX is poking back above the SMA5 200 on CL’s even higher highs. I’d cover the short on any sustained push above 2182. But, I suspect they’re simply drawing it out — which, of course, means a tag further down on the red midline. Perhaps the .786 or .886 on Monday since .618 today is slipping away?

UPDATE: 2:43 PM

It appears SPX is going to pop up and tag at least the SMA5 50, probably at 2182.77 or so. It could be a fleshing out of another falling wedge, with further to drop, or it could be another leg up in a seemingly unending series of V-shaped recoveries. In any case, I’d cover here and short again if it reverses there.

I have little faith in the “market’s” willingness to play by the rules. I don’t care so much about the extra few points in between here and there. I do care about the next 10 points if the algos get going to the upside again.

UPDATE: 2:52 PM

Well, here’s we are. Hard to see any catalysts for a reversal, but I’ll play a hunch and revert to short just for grins. At this point, the midline is down around 2179. If I’m wrong, which I probably am, the next overhead resistance is the red channel line at the SMA5 100 at around 2184ish. And, with the SMA5 10 rapidly rising, we should know fairly soon.

UPDATE: 3:31 PM

Not looking very good, here. VIX is breaking down, so there’s a pretty good chance of SPX breaking out and going up to that 2184 level. Back to cash.

UPDATE: 3:38 PM

ES just reached its SMA5 200 — a natural place for a reversal if it had further downside potential (which, I believe, it does.) I’d short here on any reversal below the SMA5 100 at 2184ish.