SPX managed to hold the key 2138 level yesterday, going into meltup mode following release of the Fed minutes and closing just above it at 2139.18 — but, just below the SMA100, thus triggering a short position.

Hawkish minutes will almost certainly result in lower prices, with downside targets of 2126.06, 2116.61 and 2102.56…any sustained drop through the SMA100 at 2138.57 should be shorted.

But, that was before USDJPY broke down, CL dipped overnight (to tag our 49.50 target) and DB continued selling off after reaching our 13.98 target [see: Deutsche Bank: Will it Survive?]

Even USDJPY is falling after a failed breakout that finally saw it tag a key midline.  There’s no doubt 2138 will be severely tested again today.  Will yesterday’s initial downside target of 2126.06 hold or will we see new lows?

continued for members…

USDJPY has broken the red TL guiding its impossibly vertical ascent — but, that’s easy enough to fix if panic sets in.

Recall, our H&S indicates lower: 2110, near the (rather ragged, and thus undependable) bottom of the falling white channel.  Other downside targets posted yesterday:

This leaves SPX in limbo.  Hawkish minutes will almost certainly result in lower prices, with downside targets of 2126.06, 2116.61 and 2102.56.

UPDATE:  9:40 AM

SPX hesitated, but dropped through the purple .886.  It appears likely to at least test the falling white channel .236 line at 2120, which is slightly above Sep 12’s lows at 2119.12 and the gray .382 at 2116.61.

Note that VIX has broken out past the purple TL.

UPDATE:  9:58 AM

SPX just dropped through the white channel .236 line and Sep lows.  I’d cover the short here at 2115.74, as ES just completed a .886 retrace of its rise from Sep 11.  If it drops back through it, I’d reshort for 2110 and potentially 2103.

Note that NKD is testing its SMA50 and a channel bottom, but seems likely to backtest a TL and the SMA200 at 16616.  This argues for lower SPX, which means we’re probably only getting a bounce here, not a true bottom.

And, with the EIA report coming out in a little while, CL could rebound up backtest the purple neckline at 51.82 or it could drop to backtest the yellow neckline at 48.64 — a true wild card.  Remember, this report will be quite different from previous ones and the headline figure could spike prices higher. See yesterday’s post for more details.

Last, USDJPY has tested its SMA100, often an important moving average.

In short, it’s not an appealing time to take a firm position one way or the other.   Even if we just get a bounce, it could be quite large: up to 2125 and, if that doesn’t hold, even 2134.  So, the additional downside to 2103-2110 might mean holding through some pretty wild swings.

As for timing, watch NKD and CL.  If they’re both tanking (and VIX isn’t), it’s time to get short again.

I have to hit the road now, but should be able to post from the airport.  Trade safe.

UPDATE:  12:48 PM

Waiting for my flight…  I see that SPX spent quite a while waffling at 2126, and is now closing in on the gap from this morning (2139.09) as well as the 2134.72 and 2138.04 price levels.

I think it’ll push a little higher, but it’ll require VIX breaking down through the purple TL below and might also require CL to break out of the falling re channel.  Hence, I’d take profits here and call it a day.  I’ll be on a plane for the next few hours, but if I could I’d wait for the SMA5 10 to arrive and see if SPX might ride it on up to 2134-2138.  

Remember, 2103 works best next week.  So, this bounce could be complex and protracted, especially with tomorrow being Friday. Again, I’d keep a close eye on NKD (key level 16,790), CL (50.55) and now that TL (at 16.64) for VIX.  A drop through it means it’s time to go long again.