If you’re looking for a reason for ES’ 12-pt rally off yesterday’s lows, look no further than the usual VIX dump and oil ramp. Within a few minutes of each other, oil recovered above its SMA200 and VIX reversed off what was a promising (for bears) rally.
Consequently, ES and SPX recovered back above their SMA10/20s just as the cross went negative. Funny how that seems to happen over and over again.
The key question: can oil’s ramp continue, now that the UK’s inflation data (+2.3% YoY) has joined the US in exposing the problem with $50 oil?
continued for members…
As a result, SPX should have no trouble reaching the SMA5 200 (2379.12) we discussed yesterday. Tagging it would be a pretty precise backtest on the purple channel bottom. So, we’ll look to see if it can hold that price in the opening 30 minutes or so.
As many of you will recall, the same thing happened last Wednesday, Mar 15. SPX had closed below the purple channel, only to gap back into it the following day and pile on 23 points before it ran out of steam.
My gut tells me this one will run out of steam much sooner, as CL still needs to fall — 45.36 at the very least and potentially to 42-43. It’s been a while since we had a nice pop and drop. I’ll hang on to that 2365 interim target for now.
And — though I sound like a broken record — a drop through it signals 2350 and, potentially, 2335.
VIX has reached a little TL of support, shown below in red — after having dipped below the yellow channel bottom for probably the 20th time this year.
And, CL is still dancing about its SMA200.
ES is breaking out of its falling white channel, but will still face the yellow channel top around 2378.
USDJPY continues to drift — out of the picture for now.
UPDATE: 10:00 AM
Well, the first half hour is up, and SPX is clinging to the positive side of the ledger. I don’t think it’ll be able to hold. The keys will be ES’ SMA10/20 at 2371-2372, followed by SPX’s at 2372.76.
UPDATE: 10:20 AM
SPX is back to the bottom of the falling red channel — with the key being that it’s below the SMA10/20. It should drop the rest of the way to 2364.99. ES’ equivalent would be a tag at the red .786 at 2362 — with the white neckline being another 5 points lower at 2357ish.
If they decide to rip the bandaid off and go for 2350, then look for USDJPY to drop through its .886 at 112.12, its former low at 111.68, and plunge on down to our downside target at the SMA200 at 108.11. It’s an incredible amount of drama to wrest a 50-pt drop from SPX — which just reinforces how effectively the “market” is being managed these days.
UPDATE: 10:32 AM
SPX just came within a half dollar of our 2365 target — possibly good enough. Note that CL is right at TL support, and ES reached its .786 as well. If CL drops through 48.84, there’s a pretty good chance SPX will actually tag 2364.99. If it drops through its SMA200 at 48.72, no problem in SPX reaching 2364.99…or lower.
Note: since the bounce at the .618 at 2370 was so substantial, there’s really no need for a big bounce at the .786 — if 2350 is the real target (bulls would argue this is a simply Gartley Pattern terminating at the .786 after a .618 bounce.) And, avoiding a bounce here would also throw cold water on an SPX H&S Pattern: no right shoulder = no pattern.
Again, keep an eye on CL and 48.72. It should tell us when SPX’s drop is really done.
Likewise, a push by VIX back above the purple channel bottom at 11.69 (also the SMA20) would be a great signal.
UPDATE: 10:54 AM
Dropping through the .786 here as ES is headed for its neckline — which should translate into the .886 for SPX. Staying short, but will take another cautious look there.
VIX is pushing above 11.69, and USDJPY below its .886.
UPDATE: 10:58 AM
Through the neckline…but horizontal support for ES. SPX — watching to see if CL is going to join in the fun. Another 10 point drop for SPX would make this the first 1% or greater drop in over 100 sessions. BTW, as we approach 2349.52, don’t forget about the gap close (virgin space) at 2351.31.
Note that VIX has a TL of resistance coming up at 12.38ish. A reversal there might help us determine when/where SPX is due for a bounce.
UPDATE: 11:23 AM
This bounce is a little premature. But, for those who don’t want to take a chance on a head fake, this would be a reasonable place to cover. VIX, CL and USDJPY all suggest we’ll get down to 2350. In fact, there’s a decent chance that it’ll hit 2350 and either keep going or just loiter so the “market” cheerleaders can say “look! It’s not being manipulated! It’s able to drop a whole 1% after all!”
UPDATE: 11:38
SPX just closed the gap, tagged the 1.272 at 2349.52 and tagged the yellow channel line, just as VIX tagged the purple TL at 12.39. I’d cover here, and re-short if it drops back through.
CL is in no man’s land, with more downside still needed. And, VIX pushed above the purple TL, the Mar 14 high, and is about to test the SMA100. Based on the indicators, I’d say it’s 50:50 that it pushes on through. So, nothing wrong with testing a long position here, but I’d keep the stops very, very tight for those who do.
UPDATE: 11:51 AM
If we’re going to get a quick, easy plunge on down to 2335, this would be the turning point. CL’s and SPX’s SMA5 10 have both caught down to them and SPX is backtesting its former support at 2354.54. I’d expect more of a bounce than this, even if it is going to tag 2335. But, no guarantees. Having had so much trouble getting down here, it wouldn’t surprise me for it to simply melt down a little more.
I’d pay very close attention to VIX as it settles back down to the purple TL and the rising SMA5 10.
UPDATE: 12:00 PM
VIX sliced down through the TL and SMA5 10. Like SPX, its SMA5 20 is fast approaching.
UPDATE: 12:09 PM
ES has just about backtested its neckline, meaning we have a shot at a reversal for both it and SPX. The only issue is VIX, which shows no sign of turning here. CL, on the other hand, has backtested the white channel it broke back into this morning. I’d try re-shorting here with tight stops.
Note that if it does dip below the yellow channel top, SPX will likely tag 2335-2338 and recover by the end of the day in order to avoid closing below an important level of support. The alternative is a close right around 2350, and a dip in the morning to reach 2335. Either way works from a charting standpoint.
What will it take to recover, especially if CL is still falling? I think that’s where USDJPY comes in. A very strong bounce off either horizontal support at 111.687 or, if that breaks down, the SMA200 at 108.10, would be expected. And, needless to say, VIX will be plunging from where it ends up as SPX reaches 2335 — maybe the SMA200, finally. It’s currently at 13.55 — only .75 from current levels.
UPDATE: 2:35 PM
This is normally the time we could look for a rally into the 3:00 hour. USDJPY bounced off 111.68, VIX dropped back through the purple TL and SMA100. And, CL got a belated bounce off its .618. All these are bullish developments, and SPX has responded in kind — rising back above the yellow channel top — but, without having reached the key Fib at 2335.
So, either I’m completely wrong about 2335 being a target, in which case SPX should start spiking higher here, or this is a head fake designed to separate the weak shorts from their positions.
All I know for sure is that it would be a mistake to engineer a drop all the way down to the yellow channel top without backtesting the obvious 1.618 Fib — one of the last remaining, really important Fib levels there is. And, it would be a much better head fake to drop down to 2335 or even 2332 and suck in a bunch more shorts before a sharp rally higher.
I’m going to stick with my 2335 target for now, but would encourage anyone with a weak stomach to cover their short and count their blessings. This next 90 minutes could be a wild ride. And, if it’s not, then we’re likely to have a wild morning tomorrow.
UPDATE: 3:38 PM
SPX is finally getting a little motion going. Will it tag 2335, or will we be left in limbo overnight (what else is new?) As always, I would only hold short if you can live with the gap risk and/or hedge your position.
UPDATE: 3:48 PM
ES just reached its equivalent of 2335. If SPX should shed another 6-7 points and bounce back, it will make things easier. If it closes at 2338 or lower, it complicates things greatly. The negative close would indicate more follow through, but we could easily get a ramp overnight that screws shorts over. I plan on covering either way at 2335-2338.
UPDATE: 3:59 PM
Covering here at the close rather than holding short overnight. If you’ve got big brass ones, hold short for 2335 in the morning. But, I think the risk/reward isn’t that great.
UPDATE: 10:40 PM
For those who are playing the eminis, they just reached our 2333.74 target. This is as good a place as any to cover, as the 9-pt deficit fits nicely with our 2335 target for SPX. Given that the decline has already taken place, I wouldn’t be surprised to see ES flatline all night so SPX can open at 2335 and rocket higher in the first minute as occurred back on Sep 9.
I remember it well, as the day before closed short of our target despite a huge drop. The following morning, SPX “opened” at our target price — 8 points below the previous close –but, printed a 17-pt gain within the first second or two of trading.
In other words, there was no way to have profited from the trade unless you had put in a market buy on open order, which would have taken a great deal of courage given the huge 53-pt drop the day before and the indicated 8-pt loss. SPX gained 44 points from the morning low in order to make sure SPX closed back above the critical 1.618 at 2138.04 (below which it had closed the day before.)
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