We’ve been watching a triangle form for over a month, wondering whether/when it would break out or break down. Yesterday, we got our answer.

After coming within .40 of our 2170-2173 target on Monday, the triangle broke down — despite vigorous intraday ramping in USDJPY and CL.  Tuesday’s initial downside target at 2150 was taken out without any difficulty.

New market-health-indicator Deutsche Bank, which reached our 13.98 target (+18.7%) from our bottom call on Sep 27, is wavering.  Having briefly pushed through resistance, it’s now clinging to support.What’s next for stocks?

continued for members…

USDJPY continues to threaten to break out on the harmonic pattern after (maybe) tagging the white channel midline.  The white .618 awaits.

CL reached the last upside target it can without actually breaking out: the purple H&S neckline.

SPX’s triangle broke down, but it has potential support at the purple midline.  A dip to the purple .886 at 2126.06 would make for more complete look from a harmonic standpoint.

Note, however, that it’s testing 2138 again.  An intraday dip is no big deal.  But, a close below 2138.04 or 2134.72 would be bearish.  Would they allow it at this point?

Note, also, that a TL connecting the Brexit lows has been breached.  More importantly, the rising white channel .236 line has broken down.  This suggests the white channel bottom is finally in play.

If, for whatever reason, it’s unable to hold, then we have to start thinking about the gray .618 at 2068.92.  The SMA200 is currently at 2068.05.  So, by tomorrow, there will be twice the pull at that price level.Here’s the same chart with the latest Fib’s drawn in.

The bigger picture shows that the Brexit lows didn’t really reach the channel bottom.  So, this channel has always been a bit suspect.  But, the measured drops below its midline and .236 line have reinforced its legitimacy.

Note the white dot down at 2068 on election day.  Remember, this is the target should Trump win the election, as presumably the Fed’s power would be diminished going forward.  The SMA200 might level off and decline just enough to cross the Fib at that point.  Even if Clinton does prevail, this might represent a good “sell the news” target.

The outlook from here is murky at best.  CL clearly shows downside potential, though we can never count it out when it’s sitting this close to overhead resistance.  The latest EIA inventory report will be tomorrow at 11AM ET (an earlier post stated the report would be released today.)USDJPY is similarly positioned.  A breakdown seems logical.  But, logic rarely factors into USDJPY’s path.It’s strength, though, is largely a reflection of rising expectations of higher rates.  We see it in DX, which recently broke out.  Depending on what the minutes indicate (coming up at 2PM ET) we could see further dollar strength to the yellow .886 at 99.606 or a reversal to do some much-needed backtesting.  The SMA10 and purple TL at 96.50 would be a good start.

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.  Dovish minutes should see SPX bounce up to (at least) backtest the broken red channel and SMA20 at 2154, with additional upside targets at 2156 and 2165.

If I had to guess, I’d say the odds favor a pullback for USDJPY and DX, which would presumably see SPX back off to 2126 — at least intraday. And, CL looks most likely to drop to the SMA10 and white channel top at 49.58.

As far as SPX goes, any sustained drop through the SMA100 at 2138.57 should be shorted — though the uncertainty requires tight stops.

I should be back in the office on midday Thursday, and look forward to resuming intraday comments at that time.

GLTA.

 

NOTE: Earlier, I wrote that crude inventories would be released today at 11AM ET.  This week’s data will be released tomorrow, and will include a roughly 31 million barrel reduction that reflects a change in the way EIA reports inventory.  Lease stocks, which have ranged from 30.6 to 33.1 million barrels for the past two years, will no longer be included.

A 31 million barrel decrease would represent a sharp 6% decline in reported inventories, which could (wrongly) be interpreted by the casual trader as a very bullish data point.  For those playing a drop in CL, be aware that a nonsensical spike could well occur.  An explanation can be found HERE.