Is It Over?

It depends. Do you feel safe with a faltering ramp in WTI and slump in VIX holding back the selling pressure generated by a falling dollar complex?

SPX made a nice recovery yesterday, setting up some potentially bullish patterns but failing to follow through on them. Some of those patterns have been under assault overnight, suggesting a potential pop and drop.

Even CL, one of the primary drivers of yesterday’s algo-enthused bounce, isn’t looking so hot right now.On the other hand, EURUSD is almost to our next upside target and USDJPY is nearing its next downside target. In short, the currency picture should be about to do a 180.

continued for members...Note that DX is tumbling again……even though EURUSD is almost to its .886 target. Chalk it up to USDJPY weakness. As usual, much will depend on whether VIX bounces or drops through support: the SMA200 at 12.88.The key for SPX will be getting on top of the yellow neckline at 2376ish. So far, ES is suggesting that won’t be an issue.The critical support level here is 2367.90. But, the currency picture is definitely reason to be cautious.

UPDATE: 9:46 AM

VIX has broken down, CL has broken out, and USDJPY is close to breaking out. But, SPX is stubbornly refusing to complete the IH&S. Rock and a hard place as long as DXY continues to slump. I imagine they’ll do what they have to to complete the IH&S, but it’s not a bad time to tighten up your stops. UPDATE: 9:53 AM

Foot off the accelerator, now, as the IH&S is complete and the channel top is reached. I’d revert to cash or be prepared to wait out the arrival of the short-term SMAs to see if they’ll prop it up — which carries its own risks. Wouldn’t try shorting, as the neckline should provide strong support. If it drops through, however… Of course, if it breaks out, I’d want to be long again for the red “neckline” at 2384.13 and potentially the .618 at 2385.50. UPDATE: 10:10 AM

Looks like they’re pushing it on up with further VIX hammering. Back to long for the points described above. But, don’t be surprised if it falls back down to meet the SMA5 10 as it tops 2377.91. This is not a strong move, and it might be better to stay on the sidelines if you don’t want to be jerked around.

UPDATE: 10:21 AM

VIX has been hit hard, and is closing in on its SMA100 at 11.95. But, note it’s also back to the white channel bottom. If it has any more upside, this is where it should turn. As such, I’d go back to cash here until we see what happens with VIX. UPDATE: 11:19 AM

Might not get much out of it, but SPX just tagged the red neckline as ES reached its .618. I’d short here with tight stops. The initial objective is 2375.83 (yellow neckline) followed by the purple channel bottom and SMA50 at 2369.19 if that should fail (don’t think it will.) Note that VIX has made a very slight bounce back above the white channel bottom. Much too early to say whether it’ll turn into anything, but it’s something to be watching.I’m going to take a brief break, will be back at 12:00. I’d plan on going long again at 2375.83 or if SPX breaks out past the red TL. If the yellow should be tested and fail, it would make sense to stay short for 2369.

UPDATE: 12:33 PM

SPX broke through the red neckline at 2384, triggering a long position. It also made it through the .618 at 2385.5. But, it’s run into the SMA20 and has the yellow channel bottom just overhead. At the same time, ES has run into the SMA10 and SMA20 just north of its yellow channel bottom. I’d like to think this will serve as overhead resistance, but no signs yet of a reversal. To the contrary, I think there’s probably some pretty strong spoofing going on in ES at the moment. VIX is back above the white channel bottom and is bouncing. But, CL — which has rallied over 2% on the day — is sitting on top of its short-term SMAs and USDJPY is still pretending to break out. Bottom line, there’s no reason SPX should break out here. So, I’d ditch the long position based on that. Having said that, the last time SPX was caught below the yellow channel bottom it gapped above it on a weekend for a nearly 30-pt gain in order to top the channel bottom and the yellow, dashed TL.

It gapped again the following day for 20+ point gain. In other words, it was a very costly short to hold over a weekend — even though the charts completely supported shorting.

I’d try shorting here, but with very tight stops and a keen eye on the news flow. And, I would definitely not hold short over the weekend, no matter how the day turns out.

UPDATE: 12:58 PM

This might just be one of those wonderful algo moments when it keeps increasing a nickel every minute until the close. I’ve pulled two all-nighters this week, so I’m going to call it a day. I’d cover the short on any move through the yellow channel bottom around 2388.77.My guess is it’ll go sideways for most of the rest of the day. But, if it ever gets some downside going (VIX is still sneaking higher) then the intersection of the yellow neckline and purple channel bottom at 2375.84 makes the most sense to me.

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For any experienced FX traders out there looking for an interesting trade…it occurs to me that USDJPY is itching to bounce off its SMA200 at 109.76 (and DXY its .886 at 96.789.) It’s unlikely to do it before the close, as that will spoil things for equities. But, it’s not unusual for it to happen over the weekend when futures are easily propped up. A nice strong bounce off good support could really help get things off to a strong start on Monday.

No guarantees, of course. And, please don’t try this if you can’t handle the considerable gap risk.

UPDATE: 3:49 PM

Coming up on the red target now at 2375.84. I’d plan on taking profits there and spend the weekend in cash. Remember what happened on Apr 24 and don’t get greedy. As negative a close as this is, TPTB can work magic over a weekend, especially where the yellow channel is involved. If you really want to gamble, stay long. But, as always, don’t think about it unless you can hedge or handle the gap risk.