Yesterday’s meltdown made perfect sense — up to a point.  As USDJPY broke down through support level after support level, it was finally clear it was heading for 116.50 — the bottom of the red channel dating back to Nov 2014.

We’ve written about this channel extensively, as it represents the line in the sand for USDJPY and, more importantly, for global equities [see: The Only Charts That Matter.] Quite simply, a drop through 116.50 means no more upside for stocks.  From Jan 19:Everything was progressing according to plan when TPTB panicked and booted CL out of its thrice-failed trajectory into the stratosphere.  The impact on stocks is perfectly illustrated by NKD, which was only 10 points away from its obvious .618 target when the excitement began.  See if you can spot the moment.CL continues ramping this morning.  How high will they push it?  As high as they need to in order to distract carry trade investors from the USDJPY debacle going on.

continued for members…

A quick look around the horn…Look for TPTB to defend first the SMA20 at 1908.95 or the SMA10 at 1902.81 and push for a tag on the next higher rung on the falling white channel.  If it drops through the SMA10, then the ultimate prize is 1865, but we’ll cross that bridge when we come to it.UPDATE:  9:37 AM

SPX is dropping through the SMA20.  I’d short here for the SMA10 at 1902.81.  Note that this is also the general location of purple neckline.  So, they should try to defend it.  It will depend on CL and USDJPY, which is pushing lower toward that 116.50 support. SPX dipping below the SMA10.  Watch your stops, in case CL suddenly decides to spike.UPDATE:  9:53 AM

If this little red channel holds for USDJPY, the timing would be around 12:15 PM.

UPDATE:  9:58 AM

SPX is testing the top of a little triangle setting up.  But, USDJPY is about to let loose, so I’d hold short.

Not sure what’s going on, but hostgator just burped up and the site was down for 60 seconds.  If it happens again, I’ll switch over to pebblewriter.blogspot.com.

UPDATE:  10:04 AM

USDJPY dropped through support, and suddenly popped right back.  I’d close the short here and move to the sidelines.UPDATE:  10:17 AM

Shorting here at 1920.89 as purple target has been hit — the rising white midline.  Tight stops recommended.  If it gets going, the downside target has now shifted to a backtest of the red TL down around 1908.USDJPY just backtested the white .786 again.  Next stop should be the white .886.  CL has, so far, respected the rising white midline, but will have some decisions to make here.UPDATE:  10:30 AM

Update on SPX chart with new targets… UPDATE:  10:48 AM

Looks like it might want to run up and tag the .382 at 1928.57 or another Fib at 1931.16.  It should settle back, as is being motivated by USDJPY testing its SMA5 50 and red channel top, NKD its SMA5 200 and ES — maybe doing a little stop running (1922.25)?  To cash at 1922.56 for now, will likely reshort there. UPDATE:  11:03 AM

CL just broke down through a little TL.  Will short again here at 1923.53.  Tight stops, as USDJPY hasn’t broken down yet — and, the euro close is coming up.  In other words, it might be a head fake.  But, with 12:15 coming up in an hour or so, it would make sense to get things going now. Here’s a great indicator to watch — is ES backtesting or will it keep going?  It’s up to USDJPY.If USDJPY cooperates, remember our next target for SPX is 1908, followed by 1900ish and the bottom of the red triangle where it crosses the red, dashed channel midline around 1893.

UPDATE:  11:21 AM

USDJPY and CL are bouncing, so SPX should too — probably just into the euro close coming up.  ES trying to get back to green at 1908.50? UPDATE:  11:33 AM

SPX just reached the white target on USDJPY pushing below the red TL.  Could get a bounce here, of it might just go for it.  12:15 is getting close, so I’ll just hold short.  Note that CL has channel support just below.UPDATE:  11:45 AM

It would be funny if it wasn’t so sad…  SPX and USDJPY weren’t dropping fast enough, so CL just had to break trend in order to give them permission to complete the last leg down.

With everyone probably aware, now, of the bounce coming at 116.50, it sets up the possibility of a plunge through it, just to screw with traders.  I’m going to be very cautious in taking a long position when USDJPY reaches our target. Note that CL is all the way back down to this morning’s lows.  A dip below 31.68 is the signal.UPDATE:  12:00 PM

Getting close.  Note that our red target covers a lot of ground – several potential turning points from 116.51 up to 116.618.  I favor the lower end of the range and a tag of the falling red channel it bounced off earlier. It’s currently at 116.52.  Obviously, the longer it waits, the lower this tag might be.

When the time comes, watch for a reversal not just in USDJPY, but NKD, ES and CL as well.  For SPX, I still like 1900-1901.  This might correlate withg 16630 on NKD and 1893.75 on ES. UPDATE:  12:09 PM

CL just tagged the underside of the rising purple channel.  Good place for a reversal if our timing makes any sense at all.  Stocks are reacting to every little twitch, really anticipating a rebound. UPDATE:  12:39 PM

SPX is heading the wrong direction.  I thought maybe it was waiting for the SMA5 100 to reach 1909, but maybe it’s focusing on the intersection of the two red TLs at the yellow dot around 1:05.  Hanging in there… UPDATE:  1:10 PM

Giving up on the short for now.  Not sure why the delay, but it’s not happening.  CL is breaking out again, which isn’t helping.UPDATE:  1:15 PM

Maybe just a head fake — or, is this the head fake?  Reverting to short, as CL quickly retreated from the thrust higher and USDJPY is hinting at a break down.UPDATE:  1:26 PM

Just realized that the lower red TL, when extended, passes through the daily SMA10 at 1902.81 at the close.  How annoying if it slowly creeps higher all day just to finally touch the SMA10 that it came so close to at 11:45 — when USDJPY almost tagged the white .886 at 116.61.

If that’s the plan, the drop to 1902.81 or slightly lower could come in a hurry right near the close in order to trap some bears.CL is still obeying its falling wedge.UPDATE:  1:35 PM

ES is going to have to make a decision very soon.  Break out or break down.  I think break out, so it’s back to cash for me if it does. UPDATE:  1:50 PM

USDJPY just tagged its .886 at 116.61 — the upper end of our target range.  SPX should get a bounce here, though there’s a chance it’ll slip lower to the SMA20 proper or the red neckline at 1907.  CL suggests that’s the case.  UPDATE:  1:57 PM

Taking profits and going to cash for now.  I’d consider re-shorting if USDJPY can push lower.USDJPY has now reached its 1.618.UPDATE:  2:03 PM

USDJPY slipping lower, as is CL.  Back to short here at 1909.54, though it might just be headed to 1907.UPDATE:  2:09 PM

Pushing through the neckline — maybe targeting the red SMA5 200 at 1904.50ish?

UPDATE:  2:18 PM

Lost the momentum on CL’s bounce back above the red TL.  Back to cash for now.UPDATE:  2:23 PM

I’ll take another crack at more downside here at 1910.24.  If my theory is right, it’ll be CL that leads it lower with a push down to new 31.47 or lower.  The target is 1902.81 (or lower in order to trap some bears.)  Tight stops are obviously in order, and keep a close eye on CL and NKD. UPDATE:

Prob more downside, but taking profits here at the SMA10.  Back to cash.

It’s been a long, sometimes confusing day.  We can expect USDJPY to rally after tagging the bottom of the channel, the white .886 and the red 1.618.  But, the big picture isn’t as clear as I’d like.

The yen has, again, strengthened as much as it can without hurting stocks.  So, it must weaken again.  Yet, obviously there is pressure from emerging currencies flowing back into the yen, or else the reversal from 120.11 wouldn’t have come all the way back down to the channel bottom.

If the BoJ is going to play ball and devalue the yeb again, then CL must be brought back under control.  It’s still 15% higher than the Jan 20 lows of 27.56.  The deal with Japan requires that it be brought back down if they’re going to devalue the yen further.

We’ve seen how strong CL’s impact is on stock algos.  How would they react to a 15% drop?

These are all questions I’ll be wrestling with in the coming hours and days.

UPDATE:  3:26 PM

USDJPY and NKD are stalling.  I’d try a short position here and see if we can’t get a sell-off into the close as a head fake.  Very tight stops are advised. UPDATE:  3:40 PM

Doesn’t look likely to happen.  I’ll dump the short position here at 1913.02.If you see NKD and USDJPY crashing in the next few minutes, by all means short it.  I’m going to go catch my daughter’s last basketball game of the season.  I’ll  wrap up later this evening.