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SPX reversed at the very last possible moment, yesterday, before the meltup could be labeled a breakout.  For now, we remain nervously short from 2361.32 for what should be at least a 10-pt gain.

Why “nervously”?  As we discussed yesterday, the good news for bulls is they’re at the cusp of a strong breakout.  The good news for bears is they’re at the cusp of a breakdown.  That’s right.  This is one of those critical turning points that will determine the course of the next few months — and, who gets to celebrate come Monday.

Of course, the French election is only one in a list of several potentially landscape altering events scheduled for next week.  There’s also the possibility of a government shutdown, potential nuclear war in North Korea, and the very real and expanding wars in Syria, Afghanistan and wherever else we’re about to bomb.

One thing’s for sure…real, live investors, speculators and traders have woken up to the risk.  Remember the string of VIX plunges (the yellow arrows) below the yellow channel bottom?  As of a few weeks ago, it was averaging one of every four sessions.  Not so much, any more. Might markets exhibit a little nervousness in the lead up to the week ahead?  Stay tuned.

continued for members…

USDJPY continues to play its cards close to the vest.While, CL is being strongly supported at 50.50.VIX avoided the drop to the SMA200 I was worried about, but the risk still remains.  At this moment, it’s on the rise — supporting a drop in stocks.  I imagine TPTB will hold that particular plunge in reserve for the outcome of the French election.As we discussed yesterday, SPX is perched at a backtest of the broken yellow channel top as well as a lesser falling white channel top.A closeup:ES is currently flat, but is moving down through a little TL that kept it afloat all night.For now, the message is to remain short from yesterday’s call.

UPDATE:  9:45 AM

I did a little fine tuning on SPX’s IH&S, which points to the white .146 at 2376.57.  The neckline is at about the SMA20 at 2351.85.  The yellow SMA5 100 will be there shortly (10.35ish), so we’ll look at that as the first level of support to worry about.

UPDATE:  10:06 AM

I have to step away for a few minutes.  I’d plan on covering at the SMA20, but keep an eye out for confirmation from VIX.  If VIX continues to rise through, say, its SMA10 at 14.6, I’d want to remain short.UPDATE:  10:44 AM

This is probably close enough.  VIX shot up above the SMA10 but just dropped back below. CL is a bit of a wild card, continuing to drop towards the .382 Fib.  This could drag SPX below the SMA20.Offsetting it is the USDJPY, which is – so far – holding the red neckline and the purple TL.If SPX drops through the SMA20, the SMA5 200 is just below at 2348.57, and the SMA10 is at 2348.31.  So, I’d be prepared to re-short for what could be a very brief breakdown.

UPDATE:  10:54 AM

11:00 has frequently been a low point for the algos, lately.  So, I’d go ahead and re-short on the expectation of a drop through the SMA20.  VIX is rising back above the SMA10 and USDJPY and CL are showing further weakness.

UPDATE:  11:16 AM

There’s the SMA5 200.  We should get a bounce here, as USDJPY is getting a nice bounce and CL has reached its .618.  VIX is starting to reverse as I type this.  Odds are this bounce is limited to the SMA5 10 or the SMA20 backtest, but that depends on VIX, which is kind of in no man’s land right now.  USDJPY also bears watching, as it has backtested the purple TL and red neckline, but not yet pushed through them. UPDATE: 11:29 AM

SPX backtesting the SMA5 20 here.  I’d revert to short with very tight stops, as VIX is pushing higher, CL hasn’t bounced, and USDJPY stopped at a backtest of the purple TL and red neckline.UPDATE:  11:36 AM

VIX’s SMA5 10 has caught up with it, providing an opportunity for VIX to break down or bounce.  USDJPY is stuck between the neckline and TL.  And, CL has bounced back above the .618. Watch your stops.  Remember, SPX’s red neckline is right here at 2351.9, so there’s much at stake for the bulls. UPDATE:  11:46 AM

SPX is pushing up through the red channel top.  I’d cover the short here and revert to cash if it breaks out past the yellow SMA5 100.UPDATE:  11:58 AM

Very close to covering here as VIX is about to drop through its SMA10 and we’re getting the SMA5 10/20 cross.  But, we’re also coming up on 12:00, so it might fade.  Keep an eye on VIX to see if it bounces off 14.60.  If it does, SPX has potential down to the SMA10 at 2348.21, and after that to 2345.10 (provided, of course, it can drop through the neckline — which is where a big VIx bounce would really help.) UPDATE: 12:52 PM

UPDATE:  1:12 PM

There’s our next downside target.  I’d revert to cash here and be prepared to re-short if it dips below this level.Note that USDJPY has reached the SMA200, though CL still has a ways to go to reach its.  VIX is in the clear. Though we’re up 15 points since shorting yesterday afternoon, SPX currently shows a 10-pt loss.  This is often where the “help” arrives.

UPDATE:  1:36 PM

I don’t think it’s going to hold, here.  Back to short on USDJPY’s continuing weakness and VIX’s continued rise.  I might be early, so keep your stops where they work for you.UPDATE:  1:54 PM

USDJPY spiking.  I’d revert to cash here. UPDATE:  1:58 PM

Yikes.  I saw USDJPY popping, but didn’t realize it would be this big.  Worth trying a long position with the SMA5 200 as your stop (or at least the SMA10 and red channel backtest.  USDJPY must remain above 107.298 to be of any lasting help.  Right now, it’s looking iffy. UPDATE:  2:19 PM

Apparently, Trump just told AP that the biggest, most spectacular tax cut ever will be announced next week.  And, the idiots algos bought it.  Not an actual breakout, though, just up to a different cusp on ES and USDJPY, which is a big red flag for SPX.  I’d ditch the long position here and only go long if ES breaks out (2347.50) UPDATE:  2:32 PM

So, it’s a melt up that aims to get SPX back to green on the day.  It might well succeed, but so far only CL and VIX are working it.  USDJPY is back down below its SMA10 and fast approaching the neckline.   They might be able to keep it going, but I find it rather dispiriting and, frankly, wreckless. 

So, I’m going to sit this one out.  Don’t let my bad attitude keep you from tagging along — just keep your stops where you’re comfortable.  At some point, I rather expect investors to sour on the whole mess and cut back on their exposure going into the weekend.  I’ll set an alarm for a drop through the SMA5 200 and work on some other things.

UPDATE:  3:06 PM

Sanity is returning, back to short on any drop through the SMA5 200.  Note ES more than backtested.  Keep an eye out for the SMA10s. UPDATE:  3:39 PM

SPX is slipping back through the SMA5 200.  I’ll give it a little leeway, perhaps up to the neckline again.UPDATE:  3:43 PM

VIX is getting hammered, will probably punch through the SMA10 again.  Back to cash here, though I’d jump at a reversal back below the 2348. I’d plan on sitting in cash over the weekend.UPDATE:  3:50 PM

One last try, just for grins.  As always, only hold short over the weekend if you can hedge or deal with the gap risk.  TPTB will be out in force, trying to prop things up.  Remember the US election?  Brexit?

UPDATE:  EOD