When I posted this e-mini chart on Monday suggesting the white target at 1937.67, it represented more than just another opportunity to score 4% by shorting (which we did.)  It was an important line in the sand for bulls.ES has reached that target 3 days later.  And, what it does next will have huge repercussions.continued for members…It’s been a sloppy channel, with many midline incursions that made no sense whatsoever.  But, there’s no mistaking where ES’ channel bottom lies.USDJPY gave up its rising white channel way back on Dec 21.  It dropped back below the .618 Fib at 120.11 on Dec 31.  ES has shed almost 7% since it did (including today’s 2%.)

At current futures prices, SPX will breach the .618 at 1962 and tag the channel bottom (1940ish).  The question is whether futures and USDJPY will recover quickly enough to prevent SPX it from dipping below the bottom and breaking its 6 year channel.Bottom line, short this morning for 1940, but watch out for a bounce at 1962 on the way if USDJPY and CL start ramping.UPDATE:  9:36 AM

SPX blew through the .618 with no problem, but looks like it’s getting a bounce at the red channel bottom.

I’d switch back to long here for as long as USDJPY and CL continue bouncing.  It could be a quick 10-15 points and done, or it could be like yesterday when it spent nearly the entire session creeping higher before finally giving up the next morning (today.)UPDATE:  9:40 AM

It’s bounced back to the .618, at which point it has some decisions to make.  Backtest and lower, or a repeat of yesterday?  I think I’ll take profits on the bounce here at 1962.09 and go to cash while it decides. UPDATE:  9:59 AM

I’m going short here at 1964.98 to see if the same pattern as yesterday works out.  If it does, we’re targeting 1958.69 in the next 10 minutes (the white dot) at which point we’d have a nice opportunity to go long for 1969ish.UPDATE:  10:06 AM

Back to long at 1960.19 for 1969-1970 around 10:24-10:29.

I neglected to mention earlier that it’s important to practice good stop management.  This algo could fall apart at any second with a big downdraft.UPDATE:  10:21 AM

I’ve made a few adjustments to the channels and timing.  If/when it makes its high at the red dot, I’ll probably need to adjust it again. If it plays out, we’re looking at the following schedule of targets:

• 1971 at 10:28
• 1960 at 10:47
• 1975 at 11:23

At this point, it’s lookin a bit iffy.  ES needs to break above its SMA5 200 very soon.UPDATE:  10:35 AM

Switching back to short here at 1971.88.UPDATE:  10:40 AM

I’ve adjusted the prices and timing slightly.  The timeline is lagging yesterday’s, but it’s not clear yet whether the lag is fixed or is expanding.

• 1961 at 10:57
• 1976 at 11:30

UPDATE:  10:52 AM

The analog just broke.  I’ll go back to cash at 1972.16 while I wait for it to resolve — probably with a tag of the SMA 200 currently up at 1978ish.  Fun while it lasted, though!UPDATE:  11:03 AM

I’m going to short here at 1975.67, as USDJPY and CL have both reached channel resistance.  If I’m wrong, then the SMA1 200 at 1977 should be the next stop.  But, if I’m right, we could get the bottom of the purple or even red channel at 1967 or 1962. Here’s a stab at a revised game plan.UPDATE:  11:24 AM

White target down.  A backtest of the .618 at 1962.31 would make sense, but they might not allow it.  I’d take profits here at 1967.05 and go to cash until we see what the euro close brings.UPDATE:  11:32 AM

Back to short at the red midline at 1969.26 for 1962. Tight stops are advised  in case the analog resurrects and resumes targeting 1979.UPDATE:  11:41 AM

I think we’re back in algo-land.  So, I’ll go long here at 1968.92 and see if we can ride the SMAs higher.  I’d use very tight stops here.UPDATE:  11:45 AM

Should have waited a few more minutes.  Back to short for red channel bottom or 1962.UPDATE:  11:47 AM

There’s the red channel bottom.  I’ll close the short here and catch my breath.  Too much, too fast to keep up with. 

There’s still a decent shot at 1962.31 and also a test of 1954.  But, there’s too much whipsawing going on, and I don’t feel like I can convey it quickly enough for anyone to capitalize on it. 

A drop through the red channel bottom is a good shorting opportunity, but with 1962 only a few points lower, it could be over very quickly.  I’d rather play a drop through 1962 or back to the long side if it bounces there.UPDATE:  12:30 PM

For anyone who’s interested, we should get a bounce here at 1963.49 up to the broken red channel bottom around 1968.68 in the next 15 minutes or so, after which it should be safe to short for 1959ish.  It’s only a 5-pt move, but playable.  Stops at 1962ish.UPDATE:  12:38 PM

Stopped out.  Back to cash for now.  UPDATE:  1:08 PM

ES’ channel just broke down.  Should be safe to short SPX here at 1956.11.  The next support is the red channel bottom and 1.272 extension at 1948.47.  And, of course, our ultimate target is the purple channel bottom around 1943.  Maybe it’ll happen today instead of tomorrow’s open.  But, that would surprise me. UPDATE:  1:23 PM

It might go all the way on this push, but USDJPY and ES are bouncing.  So, back to cash here at 1947.89.I might try another short when the SMA10 catches down to it.  USDJPY didn’t quite reach support — so SPX might have another dip right away. UPDATE:  1:43 PM

There’s the channel bottom at 1943.5.  I’m back to long here with tight stops.  USDJPY reached its channel midline, and CL should find support at the 2009 low of 33.2.  I’d prefer that it tagged that little 1.618 at 1940.84 or purple .707 at 1940.10 — and, it still could.  We’ll find out shortly. UPDATE:  2:05 PM

Probably a head fake, but I’d be back to cash if SPX dips back below the purple channel bottom.  USDJPY is hanging in there, but not looking terribly bullish.  SPX should run up and tag the SMA20 at 1953.3ish next. The bounce could be waiting on VIX, which should top out at 25.40.We talk sometimes about swing versus day trading.  Here’s an opportunity for swing traders to go long — as long as you’re confident in TPTB’s ability to calm the markets tomorrow.  If not, you’ll got to cash this afternoon as usual and not worry about what happens overnight.

The problem is the predatory HFTs out there that recognize folks will be looking at this as a great buying opportunity.  These HFTs will do their best to sew seeds of doubt about a bounce so you’ll sell to them and they can sell back to you in the morning at 30 points higher.  At least that’s the concern…

UPDATE:  2:37 PM

Don’t really want to, but I’m going to step to the sidelines when we reach the SMA20 as VIX just punched through 25.40 and USDJPY continues inching lower.  I strongly believe it’s a head fake, but I still can’t ignore the possibility of lower prices.   And, we’ve booked some nice profits today that I’d really like to protect.UPDATE:  2:42 PM

There’s the SMA5 20.  I’m back to cash here, but would gladly go long again if it can punch through.UPDATE:  2:46 PM

Feeling a little better as VIX is breaking down.  Back to long at 1950.42 for next channel line at 1959ish.UPDATE:  2:55 PM

Yep – using USDJPY and VIX to flush nervous bulls (like me) out.  Back to cash for the day at 1951.25 with some nice profits (if not my pride) still intact. The suggestion is that we’ll get a backtest of the SMA10/20, but I really dislike the way USDJPY is tanking.  In the time it took to write that… Oh, and just for emphasis, CL is back below its 2009 lows.So, what’ll probably happen here is a close at or near 1940-1943.  Then, around 3AM ET, something wonderful and miraculous will happen that sends ES up about 40-50 points. I’m thinking 1980ish.

If you’re a daredevil and decide to go for it, just make sure you have some rock solid hedging in place.  As Elsa just mentioned in the comments, who knows what China will do?  The range of possibilities is huge, and so is the risk if this level we just reached doesn’t hold.

I’m going to sign off for now and work on a new post re the website.

PLEASE READ!!!

I have created a Twitter handle @pebbletrades.  If at least 10-12 of you would like to receive tweets during the day every time I update the site, this is a relatively fast and simple way.  I won’t post any actual trades or position changes, just that there has been an update.  Otherwise, I’m double posting and it’ll slow me down rather than speed me up.

I want to stress that this is an experiment.  If it goes okay and doesn’t complicate things too much, then I’ll keep it going.  Otherwise, my days are hectic enough already.  I’d just like to make it easier for you to follow along with what’s happening, especially on very volatile days as we’ve had lately.

If you’d like to be part of it, just follow @pebbletrades with your regular twitter account or, if you’d like to maintain your anonymity, one that you set up for this purpose.  Then you can change your twitter settings to be notified by text the moment I tweet an announcement of an update.

This is a private account, so each of you will have to be approved.  If it’s not obvious who you are when you you request permission to follow me, just drop me an email at the same time with your true identity so I can cross reference with the membership rolls.  With any luck, we’ll have it up and running by next Monday.