Yesterday played out as expected, with a stop-running exercise that set a new high as we discussed last week.

But, this market is far from unrigged.  Predatory HFTs use traders’ expectations of reversals at Fib levels to set them up.

It has already played out once, suckering those who bet on any kind of a reversal along the way since the 1871 bottom (there wasn’t one.) It may yet sucker in those who go long once 2020.86 is broached.

USDJPY closed outside the Pennant Pattern yesterday for the first time since its inception on August 24.  Furthermore, it tagged our initial downside target overnight.  From yesterday’s members section:

The BoJ would love to morph USDJPY’s fluctuations into a rising channel, but that means including some tags on the lower Fib levels such as the red .618.  They’re more likely to chicken out at the rising red TL and purple .236 at 119.27 — especially if SPX is tanking.

By waiting until after the cash market closed, most of the damage to stocks was avoided.  But, with 15 minutes until the market opens, I suspect SPX will reach yesterday’s downside targets with little trouble.continued for members…

Note that USDJPY is indeed fleshing out a shallower channel.  My top candidate – the almost flat gray channel connecting the Dec and Aug bottoms. SPX is likely headed to the SMA10/50 intersection at 1989, and if that doesn’t hold, the .618 at 1964ish.  Watch, however, for USDJPY to bounce on the opening if there’s any immediate weakness in SPX.  Yesterday, it produced a 16-pt bounce and new highs before the bears reasserted themselves.NKD hit our 17938 target overnight, thus could be due for a bounce.CL almost reached our target this morning.And, VIX broke out late in the day yesterday.UPDATE:  9:45 AM

USDJPY rebounded off 119.27, and just pushed above the little 1.272 at 119.42.  Time to cut loose any shorts and ride this out. I believe it’ll run out of steam at the white channel top where it intersects the red .886 at 2007.95, but USDJPY could easily ramp it higher as happened yesterday.

When SPX unexpectedly reverses a plunge as the result of an outside influence or algo at the 1.272, it frequently rebounds to the .618.  In this case, that would signal 2012.30, where the 5-min SMA100/200 will arrive shortly.

I’d prefer to be short, and would happily reopen that position if SPX can push back below 2006 and the 5-min SMA20 (white.)

UPDATE:  10:13 AM

SPX is back within the white channel, and is testing the SMA20 as discussed above.  I’ll try a short position here and see if USDJPY cooperates.  I sketched in the red channel just to illustrate a potential little H&S Pattern that targets 1983ish.It has reached potential support of its own, but surprisingly stopped short of the SMA200. UPDATE:  10:33 AM

SPX pushed through the channel bottom (now, a neckline in white) and is backtesting it.  USDJPY is threatening new lows.  And, NKD has fallen back to support.ES shows pretty clearly the downside potential of this move.  Even a bullish case involves a backtest of the SMA10 and SMA50 intersection at 1977.60ish — the equivalent of SPX 1985ish.

I would be cautious around the red 1.618 at 1996.06 and the purple channel midline.  The white channel midline, not so much.

UPDATE: 10:46 AM

SPX just reached the red 1.618 at 1996.06.  Watch your stops here and at the purple midline around 1994.USDJPY just pushed through to new lows.UPDATE:  10:51 AM

USDJPY is bouncing a little here.  Wouldn’t be surprised to see SPX follow suit, though it means our chart is off a little.  The SMA10 is way up at 2000.04, so it might be worth playing the long side for nimble traders.UPDATE:  11:06 AM

There’s the SMA10 tag.  Could go a little higher and tag the neckline, but I’d rather be short than long here.If I’m wrong, the SMA20 should cross the neckline at around 2000 and 11:30-11:45.  It would make a good upside target as well.

UPDATE:  11:17 AM

What a sight: USDJPY being used to club SPX lower.NKd at the lows of the day as well…If it seems like this retracement is taking its time, that’s because ES’ falling channel doesn’t reach 1979 for several more hours.  It could certainly drop through the channel bottom sooner, but it could also take until 2:30 or later — depending on the final target.  Here’s the 5-min chart:The implications are that SPX could bounce around for a while, throwing off headfakes right and left and maybe even backtesting the neckline again, before finishing out this move lower.

UPDATE:  12:42 PM

Not crazy about holding short on this breakout.  Probably going up to the SMA100 at 2006, so an opportunity for a ST trade, or just step aside.Should run its course when USDJPY tags red channel midline and SMA50 at 119.246 or so.UPDATE:  1:09 PM

It didn’t quite reach 2006, but the bounce might be over.  I’d be short again on the first thrust through the red SMA10. UPDATE:  1:19 PM

Doesn’t look very decisive from SPX’s point of view, but USDJPY has backtested and is dropping from the red midline.  Back to short here.UPDATE:  2:01 PM

Maybe taking another crack at the SMA100?  CL and USDJPY working at cross purposes… UPDATE:  2:11 PM

SPX has more to go, but USDJPy just hit the .886 of its rise from Oct 2’s lows.  So, we should see a bounce here unless CL decides to get with the program. UPDATE: 2:59 PM

It’s coming down to the wire, with the close the most likely time for the moving averages to be reached.  Note USDJPY’s white .886 on the 15 min chart.  It’s already been reached, meaning USDJPY might be done. Odds are we’re going to need another cycle up and down, maybe zipping up to the 1.618 at 1996.06 before one last leg down where it’s accompanied by the USDJPY.

UPDATE:  3:28 PM

Picking up pennies here.  Think I’d go ahead and close out the short here at 1993.57, as USDJPY has already dipped below 118.67 once and might not be able to go there again.I think SPX will probably make it down to 1989 or lower.  I’m just not able to sit here any longer and stare at the monitors for the sake of 4-5 more points.  The only exception is if CL is willing to break below the little white TL.  Then it’d be worth one more shot at it.UPDATE:  3:38 PM

Here we go…one last crack at it.  Back to short one last time if CL will oblige. UPDATE:  3:59 PM

Oh, well.  Not worth the trouble.  Out again.A reminder, I’ll be out of the office tomorrow and Friday.  I should have a chance to do some charting early in the morning, with the intent of providing a general road map.  But, I’ll be out of pocket during the trading session.

More after the close.

EPILOGUE:

SPX came very close to the SMA50 target, but couldn’t seal the deal.  If CL had broken down a little, it would have been easy.  What did CL do, instead?  Sideways, until a few minutes after the close, at which time…Gotta love unrigged markets, right?  So, if you’re still holding short, thinking surely SPX can make it down to bounce off the SMA50…maybe it will, maybe it won’t.  All I know is this was an obvious manipulation designed — same as we talked about early this morning — just with a different target.

But, this market is far from unrigged.  Predatory HFTs use traders’ expectations of reversals at Fib levels key moving averages to set them up.

It has already played out once, suckering those who bet on any kind of a reversal along the way since the 1871 bottom (there wasn’t one.) It may yet sucker in those who go remain short for the SMA50.

Final look at SPX:And, USDJPY, which like CL and NDX, tagged the slightly lower support we were expecting.