The next several days will be completely under the control of central banks.  Whether that comforts you or makes you nervous says a lot about your faith in central planning.  Are you comfortable constructing a diversified portfolio with loads of potential alpha and staying long through whatever economic headwinds lay ahead, knowing that central banks will prevent any serious downdrafts?  Then, this is your market.

If, on the other hand, you have your doubts about the effectiveness of their strategies and see them as having painted themselves into a corner, you’re right to be more than a little nervous.  A quick glance at USDJPY’s schizophrenic behavior last night shows that you’re not alone.

We’ll take a look at the various tools they’ve used to influence equity prices and see if we can divine their next moves.  We’re on a bit of a roll following yesterday’s tag of our downside target from Monday morning.

continued for members…

The loudest indicator is NKD, which is up over 2% and back in the rising white channel after tumbling out of it yesterday.It’s been partially supported by USDJPY — but, likely by direct purchases by the BoJ.  Because, despite all the volatility, USDJPY is still stuck in a declining channel that started last October 2015.  We can’t call USDJPY bullish until it breaks out of this channel, currently about 105.72.

SPX should test its former highs on the opening.  From there, we’re likely to see consolidation until the FOMC rate decision at 2pm ET.

A breakout should see it melt up to our upside target at 2180-2186 (from a couple of weeks ago.)  While, a breakdown should see it backtest 2138.The key is yesterday’s upside price target of 2172.50 — the purple midline and a TL off the two most recent highs.  If it can break and stay above this level, then we’re likely to see new highs going into the FOMC decision.  If not, then we could easily see another pop and drop like yesterday’s.

UPDATE:  9:39 AM

SPX is faltering as CL and USDJPY have declined to break out.  I’d short it here and see if we can’t pick up some downside in the consolidation. USDJPY is still stuck below the white channel top and the SMA10 and SMA50.  And, while CL broke out of the falling white channel, it’s still stuck below the May lows (not to mention the clearly broken down purple channel bottom.)I don’t know whether or not USDJPY and CL will break out on their own, but I suspect any downturn that turns SPX negative will probably be enough.  If SPX will remain in that rising purple channel, I imagine USDJPY and CL would both be happy to churn sideways all day long.

And, let’s not forget about VIX, which has already shown its hand this morning.  The intraday channels are a mess, but I believe the rising purple channel bottom is a fairly likely target.UPDATE:  10:02 AM

A C-leg looks likely to take SPX down to 2167ish, but CL just decided it was time to poke up above 43.03.  Coincidence?  I think not.  The SMA5 10 is fast approaching.  We’ll find out then whether or not SPX can bounce any higher. UPDATE:  10:12 AM

SPX has reached the purple channel bottom, and USDJPY and CL are both poking up above resistance.  Do or die time for the guys pulling the strings.  Note that we have oil inventory data coming out at 10:30 ET — so, watch your stops.  I’d be more comfortable on the sidelines at this point, but we’ll see how it plays out. Note that ES’ short-term moving averages are looking pretty bearish.UPDATE:  10:35 AM

I’d take profits here at the SMA10.  CL is still falling, but VIX has hit overhead resistance.  Could always go short again if the bounce fizzles. UPDATE:  10:40 AM

The bounce is fizzling, VIX is breaking out.  Back to short for 2164 or lower. UPDATE:  10:42 AM

White TL for SPX.  CL just started bouncing, so this could be it for the downside.  If not, next support is yesterday’s 2160.18 low and then the .618 at 2157.38.UPDATE:  10:46 AM

Pulling the plug here as VIX is reversing.  And, this is our best shot at a triangle (the most common pattern) going into the Fed announcement.  If it can break back above the SMA10 at 2166 and SMA5 200 at 2167, then we have a good shot at getting back to 2172. UPDATE:  11:22 AM

Starting to get some more support here CL, USDJPY and NKD.  Should be enough to test the next overhead resistance at the SMA5 200: 2167.07. There’s obviously plenty of selling pressure out there right now.  But, TPTB seem to be more than willing to put a floor in at 2164ish, at least until the purple channel comes along later in the day.  Note that at 2pm, it’ll be up at 2163 – just below current prices.  In other words, sideways is a win for the bulls.

What about after that?  Will the FOMC risk doing anything to upset the apple cart?  The oddsmakers say there’s no chance, but I disagree.  With SPX at 30-40 points above the May 20915 highs, there’s a built-in buffer.  And, if things get ugly, the BoJ’s announcement two days later can always save the day.

I’d say there’s at least a 50:50 chance of a small increase in Fed Funds — if, for no other reason, just to give them room to lower rates the next time things get really ugly and to maintain what little credibility they have left.  I think that’s why markets are weak this morning, and I think that’s why we’ve had very little chatter out of the Fed this past week.

If I’m wrong, 2180-2185 here we come.  But, if I’m right, I think we’ll be back at 2138 in a jiffy.UPDATE:  12:04 pm

Purple channel bottom.  I’d be willing to try a long position here with very tight stops, just to see if we can get a bounce up to 2167.40 or so.  Note that the .886 is just below at 2161.50, so I could be a little early.

ES is in the same boat, with 2155.50 being good support.Note that CL is a few pennies away from the .382 retracement of its climb from 26.05 to 51.67. UPDATE:  2:03 PM

Oops…  I’d dump the long position here and see if we can’t get some downside going.  Again, our initial target is 2157.38.  Tight stops are recommended, as the ramping in USDJPY has already begun. UPDATE:  2:16 PM

No traction on the downside.  Back to long here for 2172ish — the top of the white flag pattern.  Ideal timing would be the end of the session.Note that USDJPY finally has SMA5 200 support.VIX is apparently on its way back to the purple channel bottom.NKD is treading water. UPDATE:  2:25 PM

USDJPY is directing SPX lower — probably to backtest the SMA5 200 when the SMA5 10 crosses it at 2165.79.  Playing along just in case. UPDATE:  3:00 PM

The algos are on autopilot, won’t even allow a backtest.  Back to long for 2172 and, very likely, a breakout.  My only hesitation is the SMA5 20 is almost to the SMA5 200.  They might still be thinking about a backtest here.Not even a breakdown in USDJPY and NKD have been able to put a dent in the rise.VIX continues to notch steadily lower.UPDATE:  3:20 PM

There the flag pattern top.  I’d revert to short here unless it’s able to break out.  I’d normally say revert to cash in such a situation, but VIX has reached the purple channel bottom and ES has backtested a TL of resistance. Even CL faces resistance here.Only USDJPY remains on the fence — not committing one way or the other.  Obviously, any of these things could change/break out/break down.  Would it surprise anyone if VIX suddenly plunged below 12.59?  But, we have some clear metrics to watch (as we wait to be stopped out.)

UPDATE:  3:42 PM

Which do you believe…USDJPY or VIX?   I think they’ll probably monkey-hammer VIX for all its worth here.  Back to cash if SPX breaks above 2171.72.

UPDATE:  3:50 PM

We’ll probably get a bounce here at the SMA10, so I’d take profits here and go to cash.  Yes, there’s more potential downside, but there’s also potential for a bounce overnight.  We’ve had a decent day…why risk it by holding overnight?