There’s an old saying: “live by the sword, die by the sword.”  No one was complaining when algos, prompted by a soaring USDJPY and plunging VIX, nudged stocks ever higher.  Now that they’ve exacerbated SPX’s drop — almost (shudder) 2.5% off the highs — will investors be as enamored?

SPX’s sharply rising channel broke down on Wednesday with a close at our initial downside target.  Yesterday, SPX tagged our next downside target, bounced around for an hour, then proceeded to break below a larger channel dating back to Dec 30, 2016.

Needless to say, this was a more serious breach and leaves the door open for the downside targets we posted last week.

continued for members…

The dollar’s demise continues to weigh on USDJPY. And, VIX has — so far — declined to come to the rescue.This has left SPX with juicy targets that, when we first proposed them, seemed like a long shot.  Not so much, anymore.  SPX’s first support comes in at the .786 at 2423.93, followed by the .886 at 2415.41 where it lies alongside the SMA100 at 2416.46.

2423 would get SPX to a backtest of the falling purple channel, meaning we could get a nice bounce there.  It could conceivably even be the end of the drop.  But, the SMA100 is my preferred target, especially as it lines up nicely with ES’ SMA100 at 2414.69.

UPDATE:  9:41 AM

There’s the .786.  We’ll watch for a bounce here, but stay on the lookout for a further drop.UPDATE:  10:05 AM

SPX just dipped below its .786 but ran into horizontal support at 2420.70 — a line that has provided for several bounces in the past 8 months.  Furthermore, ES backtested its broken channel and CL reached the bottom of its new rising channel.    Stay tuned… The SMA100 is very important.  Whether or not SPX can hold above it should dictate what the rest of the year looks like.  Note the TL from Feb 11, 2016 — the day that oil bottomed out at 26.05.If it can’t hold, then of course we’ll start talking about 2335.  But, until then, I imagine they’ll get pretty aggressive about propping things up if/when SPX reaches the .886. UPDATE:  10:57 AM

Moment of truth…if SPX can remain below the SMA5 20, there’s a clear shot to 2415 at the bottom of the red channel.  Otherwise, we’ll get jerked around for the rest of the day with the promise/threat of a drop hanging over our heads for hours and hours. UPDATE:  11:23 AM

Looks like a breakout and backtest instead of a straight drop to 2414.77.  If so, look for SPX to rise through the euro close, possibly up to the SMA5 50 around 2432.40ish.UPDATE:  11:30 AM

I’d short here with relatively tight stops for 2414.77 — at which point I’d be prepared to go long again.  Note that if this forecast plays out, it might not happen until the end of the session or even Monday morning.  With that said, keep an eye on ES, VIX, CL and USDJPY — every one of which is testing its SMA5 200 (and, people wonder why I’m cynical…)

I’m going to take a break for an hour or so and try to get the oil update posted.  Interesting stuff!

UPDATE:  12:11 PM

Quick note re oil…after bouncing at our 46.46 target yesterday, it just ran into resistance at the SMA20, SMA100 and SMA60 200.  I think it’s a little ahead of itself and should retreat from this level.  Remember, 45.15 remains a viable target.UPDATE:  3:48 PM

Well, here it is hours later, with SPX no closer to our 2414.77 target than it was this morning.  Can it eke out a 15 point drop in the next 12 minutes?  I’d say there’s a pretty good chance, still, and would be comfortable holding short.  But, at 2415, or even a slight overshoot, I’d want to be long again.  And, I’d be okay holding that long position over the weekend only if I could hedge or deal with the considerable gap risk.  If it falls short today, though, say 2424, then we’d likely get the rest on Monday. UPDATE:  4:00 PM

At the close…looks like more downside on Monday.  Though, note that SPX’s SMA100 is now up to 2417.13.  Not at all an unusual OPEX kinda day. I’m still working on CL, hope to have it out soon.