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Last Thursday, with the BoJ up to bat in central banks’ favorite game of Keep Equities Afloat, I suggested that not only would they whiff the ball, there would be some fallout.  With USDJPY at 105.34 and spiking higher into the US equity close, I posted this half-hearted trade advice:

If you’re a glutton for punishment and want to take a flyer on Kuroda disappointing, here’s your entry point.  My gut tells me this is the right move, but of course it’s insanely risky.  And, I’ve been wrong more than right today.  So, do the smart thing and stay on the sidelines.

(If you intend to ignore that last remark, keep an eye on VIX and CL.  FWIW, I think VIX makes a recovery here and CL heads for 40.92.)

This was my best guess at the fallout to come:

USDJPY plunged to the first target (the white dot) later that evening.  This morning, five days later, we’ve been rewarded with the second target — bringing the total gains for those who shorted to 4.1% in 3 days.

It’s a day late, but that’s okay.  It just means the BoJ “cares.”

The delay helped stocks avoid a worse sell-off than would otherwise have been the case  (so did the fact that CL spiked over 3% off its lows and VIX, which has managed to make new highs since then, was first smacked down rather forcefully.)

But, that was then.  This is now.

continued for members…

The NKD, which soared 2,000 points on the promise of more/better/faster from the BoJ, has given up a good chunk of those gains. We’ll start this morning with a look at the ridiculous pattern established by ES/ SPX since the Brexit rescue.The chop has plainly been ridiculous.  But, after a series of headfakes, new highs and higher lows, it should start to resolve into some downside in the next few days.Note that another H&S Pattern has completed.  I think this one will take.  It’s easier to see on the ES chart.The white dot on ES lines up with 2138 on SPX, and ideally would occur late Friday or early Monday.  Though we should get some bounces along the way, including 2160 later today or tomorrow, and 2153 tomorrow or Thursday.

It’s been a long time coming, but bears should finally be rewarded for their patience —  even though it’s a very small win.  At 2134, it would be just a 23.6% Fib retracement of the rally from the Brexit lows — a rally that was sold, by the way, on the wonders of the coming BoJ QQE expansion.

UPDATE:  9:48 AM

So far, so good.  SPX is squarely back inside the falling white channel, and should accelerate from here.  If it does, it could bounce at 2161.20 instead of 2160 — as that would also allow a tag on the white channel midline.UPDATE:  10:05 AM

Just reached the red .786, on the way to the .886.  Note that NKD is pushing past its red .886, so I assume the BoJ has signed off on this move now rather than later today. UPDATE:  10:10 AM

Just pushed past our first target, and made a slightly lower low.  But, ES didn’t.  So we could get a bounce in here somewhere.  But, ES’ bounce would make more sense at about 2150 — the equivalent of 2156 on SPX.VIX has now retraced 88.6% of its last drop, so argues for a bounce very soon.UPDATE: 10:21 AM

ES just tagged its SMA20 and red .786, so we’ll look for a bounce here.  Back to long with very tight stops.  There’s still 3 points to go till the white target (about 4 for ES) but there’s a good chance of a bounce that pops up to at least the falling SMA5 10 around the white channel midline.  Naturally, we’ll want to keep an eye on USDJPY, CL and VIX to see if they’ll generate a bounce here. UPDATE:  10:40 AM

It appears as though they’re not waiting.  Back to short — though be aware this could very well be a head fake to run some stops.The culprits are CL, which just dropped through support, and VIX, which just pushed through 13.74. Remember, we’re looking for 2146 on ES and 2153.75 on SPX.  These would line up nicely with our third USDJPY target at 100.79-100.87 — which wasn’t supposed to happen until later in the week.If SPX overshoots 2153.75, the SMA 20 is just below at 2152.30.

UPDATE:  10:55 AM

ES just tagged its 2146 target — another chance for a bounce.  I’d try a long position here again with very tight stops. Since SPX has broken down below the falling white channel bottom, we can’t really rely on it anymore as a guide to the ultimate downside.  It was busted to the upside yesterday, anyway.  So, we have to consider the possibility of a drop to the white 1.272 at 2149.78 or red 1.618 extension at 2147.08.  And, of course, we’re now not all that far away from the 2134-2138 target.

ES’ H&S Pattern targets 2143.25 — the Jul 15 low and about 2 points below current levels.  SPX has already overshot its 2154 target.  We’ll see what happens if SPX bounces back to the white channel bottom at 2154.78, ideally as the SMA5 10 arrives.

USDJPY continues to slide lower, so I’m sliding my 100.79-100.87 target (red, below) over to today.VIX is starting to sell off in earnest — though I don’t see a clear pattern just yet.And, CL could get a nice bounce off the .382 to at least backtest the SMA5 200 and potentially the broken white TL.UPDATE:  11:17 AM

Back to the white channel bottom, looking for a big push from USDJPY or CL or more drop from VIX — but not seeing it just yet.  If the algos don’t kick in, we might be heading lower again.  So, watch your stops.  I have to step away for a few minutes, so watch those stops carefully.  CL is slipping again, which won’t help a rebound.  I’d want to get short again on any drop through 2151.30ish.

And, just an FYI, I have to duck out at 1pm today, but should be back before the close.

UPDATE:  11:34 AM

CL just let loose after the euro close.  Big dump down through all support, now heading for 39.  I’d switch back to short here, but with tight stops.  Only a 50:50 shot at lower.  It’s about time for USDJPY to start ramping, which would offset CL’s damage. I can only imagine how many billions are being spent right now, propping this sucker up.

UPDATE:  11:47 AM

That should about do it for USDJPY.  I’d look for SPX to bounce here on a USDJPY bounce and VIX smackdown. CL has further to go, but it won’t matter if the other two are cooperating.  Obviously, if USDJPY and VIX don’t reverse, we’re heading lower.UPDATE:  12:04 PM

VIX still bouncing, but USDJPY is making a feeble attempt at a bounce.  So, we’re likely to go a little lower.  I think ES will bottom at 2143.25, so know that we might be reversing right away after another little dip to 2150 or so.If ES 2143.25 doesn’t hold, then the next support isn’t until 2138.75, about 2144 on SPX.

UPDATE:  12:30 PM

USDJPY is dropping through support at 100.793.  It could be a head fake, but it suggests lower lows.  I’d keep an eye on VIX, which is back below 13.74.  If they want to support SPX, they should start pounding on VIX here. UPDATE:  12:44 PM

Looking at a bounce that’s just not happening yet, thinking we’ll likely get another little leg down to the 1.272 at 2149.67.  If it reverses here at 2154.54, I’d want to get short again for 2149.67 and consider another long position there. If 2149.67 doesn’t hold, then the next support is at 2147.08, followed by 2141.88, 2138, and then 2134.

The bounce, if/when it happens, has to push through the white channel bottom, the falling SMA5 50 now at 2159ish, and then it can try for the white midline.  Also in the way, ES’ SMA20 at 2150.13. USDJPY overshot our downside target a bit.  It might pop back up, or it might be backtesting it in order to effect more downside.As mentioned before, I have to duck out for a little while.  I’ll be back before the close, hopefully well before.

GLTA.

UPDATE:  1:14 PM

Running out the door…just wanted to point out that there is a path to 2134 near the close today.  Keep an eye on VIX, which is making new highs, and USDJPY/CL, which continue to slump.UPDATE:  3:44 PM

SPX dipped below the red TL, got as far as near the 1.618 before USDJPY started bouncing and VIX started selling off.  This left ES slightly above the SMA20 in a classic melt up, and SPX is nearing the SMA5 100 and white channel midline mentioned above.  2134 looks doable in the morning, though it’s apparently off the table for today.  For those who can handle the risk or hedge, I’d short at 2158-2160 into the close.  Otherwise, the sidelines is the place to be overnight. UPDATE:  3:49 PM

SPX just reached the SMA5 100 and Wednesday’s lows (the red 1.000.)  For those intending to short overnight, this is probably a good entry point.  USDJPY should get a nice bounce here, but I don’t think they’d let it fall all this way not to do a proper backtest.  So, my expectation is that we’ll get another leg down from here — though it coudl melt up another few points first.UPDATE:  3:56 PM

A close-up…