SPX and ES had no trouble reaching our initial downside targets — a backtest of their January highs.  We wondered, however, whether the SMA20s, loitering just below, might come into play.

Sure enough, ES tagged its SMA20 with ease.  But, emini traders strongly resisted a drop through the SMA20 – bad mojo, don’t you know.

So, SPX only reached 2867.29, just shy of the SMA20 at 2866.27. And, faster than you can shout “help me Clarence!” SPX bounced the 16 points we anticipated, just like it did on Wednesday.

It was a near miss..or, was it?  As we discussed on Tuesday…

One little trick we often see on days when it’s difficult to convince the machines to sell/short down to an obvious bounce point such as the SMA10 is to drive the price merely to where the SMA10 will be tomorrow.  The SMA10 will likely increase by another 5 points tomorrow, so getting within 2-3 points is potentially “good enough.”

As luck the algos would have it, today’s SMA20 came in at…wait for it…2866.27.  January highs and SMA20 were both tagged.  So, all is well, right?  Not so fast.  Futures are currently off 10 points, banks are tanking, oil and gas are slipping, FB is scurrying toward the basement and TSLA has tumbled 15% since Tuesday’s short call.

In the distance, sirens.  A mob of nervous investors crowds the door.  Might the Building & Loan actually be in trouble?

Thanks to overeager algos, the S&P 500 has thus far ignored the threats of tariffs, political turmoil, emerging market meltdowns, rising interest rates and historically high multiples. None of that matters as long as corporations can borrow cheap and repurchase their own shares, VIX can be hammered when necessary, the dollar continues rising and oil/gas prices don’t crash.

If any of those support mechanisms falters, however…  Well, we’ve seen what can happen.  Keep an eye on 2867.29.

continued for members…

ES is currently off 11 points.

At -12, it’ll give SPX an opportunity to actually tag its current day SMA20.  Below 2867.29, there are too many support levels to count.  I’ve labelled some of the more obvious ones.

And, the chart below shows the bigger picture with upside targets.

Keep a close eye on VIX, with still has good potential to 16.

For those who took profits yesterday, I’d only consider a long VIX position with very tight stops.  Odds are, TPTB will pull out the stops to hold 2872 and VIX will be back down to 11.6 in the next few sessions.  Unless they don’t.

On the currency front, DXY is back above the little purple TL – a positive.  But, it still looks quite overextended.  If TPTB can get SPX up to 2965 by Sep 27, I suspect we’ll see the Fed throw some doubt on the Dec rate hike.  This would presumably weaken the dollar and take some pressure off EM currencies. Between now and then, I suspect we’ll see the dollar strengthen against the yen.  The pair should only appreciate as fast as it needs to.  That is, If I’m still a little uneasy with the EURUSD forecast.  If the USD strengthens into FOMC day, then weakens, we could see both of the targets below hit in quick succession.  If I’m wrong, then USD will simply continue to strengthen and we’ll see the pair continue to sell of after its recent backtest.  Not a high conviction trade.Oil and gas continue to slip. I’m going to step into a meeting, will be back around 10:30.

UPDATE:  3:50 PM

Awful news on the trade/tariff front (tariffs on the entirety of our purchases from China, really?), but TPTB are doing a decent job of propping it up.  I imagine they’ll ramp it out of the falling channel over the weekend, but there’s the risk that things tank after this prop job.