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Yesterday was a strange day, with SPX tagging our downside target (after an 18-pt spike that instantly reversed itself) and then going on a 25-pt tear led by ramp jobs in both USDJPY and CL.  It was just what the doctor ordered.  From our initial post:

The futures gave up almost 30 points overnight, but signal a small gain at the open.  SPX needs all the help it can get, as a drop through the white channel bottom would likely mean 1991-1996 for starters.

Today should be about positioning: the bulls for a breakout and bears for a breakdown.  With the futures up 22 points before the open, it’s pretty clear who has the upper hand in the after hours.  But, it’ll be interesting to see how things go once the rest of the world arrives and thinks long and hard about event risk.

Note that USDJPY bounced off the bottom of the channel from 2012 yesterday.  The two previous bounces were Aug 24 and Oct 15 — not shabby entry points.   Today, it’s all about the 100 and 200-day averages.

continued for members…SPX should backtest the purple channel .236 line (2046ish.)  Whether it breaks through is anyone’s guess.UPDATE:  9:34 AM

I think that’s probably close enough.  I’d switch to short here, with tight stops.  Our initial target is 2036ish, the falling white channel midline.UPDATE:  9:41 AM

SPX is pushing up through the channel line on CL’s say so.  Next resistance is the .618 at 2051.81, so watch your stops. UPDATE:  10:07 AM

SPX has managed to stall long enough for the 5-min SMA10 to arrive (ditto for USDJPY.) At this point, we usually get some oscillation for a while until the SMA20 arrives… at which point it’ll either hold or not.  I’d close the short on any move up through the dashed red TL, which is actually the top of a megaphone pattern.  Note that even though USDJPY is ramping like crazy, it will run into the SMA100 and 200 at 121.57-121.59.  So, at some point, the carry trade folks will quite rightly start to have doubts about its ability to push SPX any further.  Of course, that might be when CL suddenly decides to spike back through the red channel midline.UPDATE:  10:57 AM

USDJPY just shot up through the SMA100 and 200 to the red channel midline.  SPX’s reaction has been rather muted thus far.  I suspect there’s some real live selling going on that has to be offset. UPDATE:  11:20 AM

That’s 10 crosses of the 5-min SMA10 so far.  After tagging the red channel midline, USDJPY is hanging out north of the 100 and 200-day moving averages.  And, CL – as expected – is pushing through its red channel midline.  I’d dump the short position here, as it seems they’re determined to prop SPX up all day.  Will happily reopen it if SPX can break down at all. UPDATE:  11:35 AM

With europe closed, I’d take a shot on a short position for a breakdown below the white triangle here.  Just know that it could easily be limited to the blue channel midline (2041.60.)  If it doesn’t however, there’s potential to the 2040 and then 2035.UPDATE:  11:50 AM

USDJPY just dipped down to its rising white channel midline, so I assume it’ll bounce here — taking SPX with it.  I’d take profits here and revert to cash, but gladly reopen the position if USDJPY breaks through the midline.  SPX will no doubt tag the 5-min SMA200 (currently 2036.72) at some point. UPDATE:  12:07 PM

Overshot the blue channel midline, but should reverse at the red midline again.  What’s more encouraging is that ES just backtested the white TL off recent highs.  Back to short with the 5-min SMA200 as our downside target.UPDATE:  12:29 PM

SPX looks like it’s going to pop up over the midline here, so back to cash.  The only hope bears have is CL reverses off its 37.75 — the 8/24 lows. UPDATE:  12:37 PM

I’ve found over the years that bullish reversals off 1.272 extensions often run up to the .618.  Here we are — with the SMA50 just overhead at 2054.60.  I’d be inclined to take a short position here, especially with TL having reversed off 37.75.  Not looking for anything dramatic — just 2045-47 or so. UPDATE:  1:34 PM

Closing out the short here at 2045.84 — channel midline backtest and 5-min SMA50.  I’d take a long position, but with tight trailing stops.  There’s potential up to the SMA50 at 2054.60 or even higher — the SMA200 at 2062.85.  But, I expect selling pressure to pick up later in the session.UPDATE:   2:57 PM

First dip below the SMA20.   I’ll close out the long position if it pushes below the SMA50.UPDATE:  3:05 PM

Seems like the long position might fail here.  I’ll give it another sec or two, as USDJPY is threatening a breakout. UPDATE:  3:07 PM

Bailing on the long position here.  Will go to cash and possibly open a new position if USDJPY breaks out or down.UPDATE:  3:30 PM

Getting some movement here.  I’d short here on the break down through the white channel bottom.Be cautious, though, as USDJPY hasn’t really flopped — still holding on to the SMA50 after sideways break from rising white channel.  If it holds or bounces, SPX could easily find support on the rising purple channel bottom and get a big bounce into the close.ES has clearly broken trend.UPDATE:  3:45 PM

There’s the break above the channel line.  Back to long – probably into the close. Keep an eye on VIX, which just dropped like a rock through support……and, USDJPY, which has not confirmed this pop. UPDATE:  3:53 PM

I think SPX just figured out there’s no support from USDJPY or CL. Back to short.  This’ll probably be last position, as we’re just getting whipsawed here.It probably goes without saying, but I wouldn’t hold any positions overnight.