One glance at the eminis chart tells you all you need to know about the past month.  Head & Shoulders Patterns used to be pretty reliable.  This one indicated a 50-pt drop last week — a whopping 2 1/2% sell off.  But, it was not allowed to happen.  

Now, it’s the day after OPEX and quad-witching, which means there’s at least the possibility of things letting loose.

continued for members…

SPX shows a similar pattern — with 2375 acting as the no-go zone for the past several days.

This morning should feel familiar, as CL is selling off……but, VIX is positioned for a supportive drop — backtesting the purple channel bottom and the white TL.

While we remain short from last week, we’ll keep an eye on the 5-min ES chart — along with the 5-min charts on VIX and CL.

A dip below the white TL means SPX has potential below its white channel midline.  But, the SMA10 and 20 await at 2372.80 and 2371.64.  However, if those break down, then our downside targets have a real chance.  I’ve adjusted the yellow channel backtest to 2350ish as soon as tomorrow, and of course the 1.618 remains at 2335.

Aside from CL, USDJPY continues to weigh on stocks.

UPDATE:  9:41 AM

SPX is coming up on its SMA10, though VIX is doing its best to make sure the drop doesn’t alarm anyone.  Note that VIX has potential support at 11.12ish — the white channel top and an internal TL shown in red.  If it gets a bounce there, SPX would be able to drop through the SMA10/20 without too much trouble — provided, of course, that CL and USDJPY don’t suddenly reverse.

My expectation is we’ll get a bounce at the SMAs.  But, I’ll be watching for a signal from CL and VIX that indicate a drop through them.

UPDATE:  10:23 AM

SPX is pushing back to green on VIX’s drop through the red TL and CL’s bounce up past the red channel top.  However, ES and SPX are both at overhead resistance.  For those who didn’t hold short over the weekend, this is a good potential entry point.  Given VIX’s action, however, it also serves as a good stop for shorts (with the SMA5 200 just above at 2381.34.)  Bottom line, this is an important pivot point.

UPDATE:  11:00 AM

SPX’s SMA5 10 has caught up to it at the falling white channel top — largely on CL’s sudden spike.  OPEC is jawboning that there’s increasing support for the supply cut to continue into the 2d half of the year.  This is a huge spike, but has thus far been unable to get SPX to break out of the falling white channel.  If it does, there remains overhead resistance at the SMA5 200.

Note that VIX is lurking just below the support we discussed earlier.

UPDATE:  1:44 PM

SPX just tagged the SMA10 and SMA20.  We should get a bounce here, but remember the earlier warning: there could be more to come.  As always, we’ll keep an eye on CL and VIX and, to a lesser extent, USDJPY.  The logical play is to revert to long, but with tight stops in case the drop extends to one of our lower targets.  The red channel takes Friday’s high into account, while the original white channel treats it as an aberration. 

UPDATE:  2:12 PM

Not much of a bounce yet, which suggests there’s more to come.  One scenario that appeals to me is a drop through to 2364.99, the light blue .786 on a grid that would put a 1.272 extension at our 2350 target.  I’d revert to short here, as SPX just reached the SMA5 10.

UPDATE:  3:16 PM

SPX is poking up through the SMA10 after tagging the blue .618.  I’d dump the short position here and only re-short if VIX bounces on the SMA5 200.  If it gains momentum, it has potential to the white midline at 2376 or the SMA5 200 at 2378.  I expect it’s only a counter-trend, and the 2350 target is still in play.  Keep an eye on ES SMA5 200, coming up at 2371.25.

UPDATE:  3:38 PM

Here’s the white channel top and the rising white channel midline – could serve as a reversal spot if we get any weakness into the close.  Otherwise, the SMA5 200 at 2379.24 looks promising.  Note that the .786 and falling channel intersection is probably pushed off until tomorrow morning unless we get a reversal here.  I’d try reverting to short here on any sign of weakness — but, with very tight stops.  Neither VIX nor CL support the idea of a reversal just yet.

 

 

 

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