Oil prices move equity prices, plain and simple.  When oil gets the sniffles, equities catch a cold.  When oil drops through major support, equities just plain panic.

So, it’s no surprise that equities are panicking just a little this morning, as CL is pennies away from completing a Head and Shoulders Pattern which targets 31.55.  I understand why it’s necessary.  But, equities are not happy one bit. The futures are currently off 14, which should land SPX right at our secondary downside target.

Our first was overshot by 2 points yesterday before a sharp snapback rally that probably left most people long overnight.  We remain short.

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Our next downside target is our old friend, the yellow channel top.  If SPX drops through, the .786 and .886 at 2421.7 and 2418.90 would certainly work, but the SMA20 would complete a shallow A-B-C pattern at 2414.89USDJPY nailed our 108 target and is bouncing out of the falling red channel in order to quiet markets.  VIX reversed at a TL from the May 18 highs.UPDATE:  9:32 AM

SPX just slipped below the yellow channel top to tag the .786.  Since VIX is dropping fast, I’ll assume they’re going to try to put a floor in here.  I’d cover, and reshort if it comes back through after backtesting, say, the yellow channel bottom.I like the idea of VIX bouncing at 11.32, but we’ll see.  It might just drop on through.UPDATE:  9:40 AM

VIX tagged the yellow channel bottom, so we’ll look for a bounce here and another push lower from SPX after backtesting the yellow channel. I’d keep stops tight on this, as TPTB have worked hard to hold the yellow channel line, and they might decide it’s worth defending again.  The SMA20 is a good 10 points below it.

UPDATE:  9:47 AM

An unscheduled potential bounce spot here, as ES has reached a little TL from this morning’s lows.  Note that ES didn’t quite reach its .886 earlier (though it did reach its SMA20) so it might drop on through. 

Even if it reached its .886, it still wouldn’t be enough for SPX to reach its SMA20 at 2414.89, so we’ll keep an eye on VIX, which has reached its SMA50 and 100, and hope it support a turning point.  Nimble traders might wish to cover here and look to re-short as the SMA5 10 catches down — perhaps closing this morning’s gap in the process?

UPDATE:  10:03 AM

SPX just tagged the SMA5 10 at 2426.83, so we’ll look for a reversal here.  Back to short with tight stops.  Chart in a minute…

UPDATE:  10:10 AM

No gap close, so that last short might have been premature. Keeping a close eye on VIX, which didn’t tag its SMA5 200 when it had the chance.  SPX will have another chance to close the gap when the SMA5 20 arrives in a few minutes and might decide to pop back up there as VIX drops to 10.97.  We’ll also watch USDJPY, which just reached its SMA200 and a potentially important channel line.UPDATE:  10:25 AM

Here’s the .886.  Again, nimble traders might catch a bounce here.  But, we’ll watch VIX and USDJPY to be sure.  I figure VIX can pop down to tag its SMA5 200 any time it likes.  It hasn’t done so, yet.  And, it appears they’re waiting until it’s higher than its initial dip this morning.  And, of course, a higher low for VIX means more downside for SPX.We’ve talked about the SMA20 this morning, but don’t forget about the purple .886 at 2408.45.  There’s a white 1.272 there, too.  And, it jibes with ES 2408ish — the yellow channel midline. UPDATE:  10:40 AM

USDJPY just pushed through the SMA20 and 200 and is testing the white channel line.UPDATE:   11:00 AM

Decision time for SPX as the SMA5 20 has arrived at the same time that SPX backtested the yellow channel top again.  I’d close the long position here, though VIX still hasn’t made its mind up about dipping to that SMA5 200.If SPX pops up on top of the SMA5 20 and yellow channel bottom, then we’re likely looking at either a full recovery or a postponement of any further drops until later today or tomorrow.

UPDATE:  11:15 AM

Looks like we’ll get that gap close after all.  But, it could coincide with the falling SMA5 50.  Note that ES is coming up on its SMA5 200 and VIX’s SMA5 200 is now up to this morning’s lows. UPDATE:  11:25 AM

I’m going to take a break.  Looking for SPX to close the gap at 2428.34, perhaps with the arrival of the SMA5 50.  This will probably coincide with VIX reaching its SMA5 2000 at 11.08ish.  Note the euro close is coming up.UPDATE:  11:34 AM

The gap is closed.  I’d revert to short here with very tight stops.  There’s at least a 50:50 chance of SPX getting caught up by the rising SMA5 10 or 20 and riding up to the SMA5 200 or to backtest the broken white channel – going flat on the day. 

The only way this really reverses is for VIX to pop back above the SMA5 200 and the SMA50/100, for USDJPY to back off the white channel line and SMA200, or for CL to dip below 44.16ish.

I’d stay short as long as SPX remains below the SMA5 50, and wouldn’t go long unless it popped above it for the ride up to 2434.70ish.

I’ve got a breakfast to attend, so I’ll sign off for now and be back in an hour or two.

NDX continues to suggest a slightly lower low, looking to pick up support at the SMA50 or even white channel top (a backtest.)UPDATE:  2:53 PM

SPX closed the gap, backtested the yellow channel top, busted through the SMA5 50 (2426.82) and is closing in on the SMA5 200 and SMA10.  VIX and USDJPY are working in tandem to make it happen. UPDATE:  3:27 PM

Probably close enough, though it could obviously pop through the SMA5 200 with a dip by VIX through the SMA20 to the SMA10 or lower.  Note ES has reached its SMA10.  If VIX dumps here, I’d jump back in for 2440.  Otherwise, happy in cash overnight.  If it worth shorting here?l  I suppose so.  But, only if SPX dropped through the SMA5 10 — and, even then, the channel bottom is only a few points below. UPDATE:  3:43 PM

This might be all we get.  Just checked, and the SMA20 will be up to 2418.54 tomorrow (versus low today or 2418.53) so it’s quite possible they’ll call this a SMA20 tag and continue levitating. I’d go to cash here unless it drops on through the SMA5 100 — in which case, why not play along?I plan on taking tomorrow off to catch up with some family business.  I’ll post some in the morning before taking off.

GLTA.