SPX shot up to our initial upside target yesterday, reaching 2112.66 before turning around and tagging the second of our downside targets. While it made for a strong performance (we called a short at 2112.60, rode it back down to 2098 where we played the bounce), it did little to reassure traders.  From yesterday’s members section:

That caveat includes a potential consolidating move just short of the Jul 31 peak at 2114.24 that would mirror yesterday’s stick save just shy of the previous low.

The algos are firmly in control at this point, so there is little to do except watch the signals from CL and USDJPY.  The most telling move this past week has been CL — which needs to continue melting down if USDJPY is to score big gains.

continued for members…  Yesterday’s targets remain the same, with a current bias to the downside.

Here’s the TL on USDJPY to watch today.  A bounce and stocks will be supported, a drop through and they won’t.  It’s silly, I know, but it’s the way things are working lately.

Today’s objectives should include closing yesterday’s huge gap in TNX — the 10-yr treasury note yield.  Ordinarily, this would mean an SPX drop as big as the gain that accompanied yesterday’s gap up.  But, we’ll have to see what USDJPY/CL permit.

Assuming SPX makes it down through the SMAs at 2095-2100, we’re looking at the purple .618 at 2082.90, the .707 and red midline combo at 2078, and the purple .786 at 2074.37 — which would be a slight drop through the white TL off 2044. It would be an interesting place to close for a head fake.

Of course, Monday’s reversal at the purple .500 suggests a Bat Pattern which runs to the .886 at 2069.3

As I typed that, USDJPY just let go of the red TL.  Its next support is at the gray .786 and then the red channel midline.

More later, as I’m finishing up some interesting VIX charts.

UPDATE:  9:43 AM

Should see a bounce here in SPX at 2094 in sympathy to TL support in ES.

ES: watch the yellow TL, and then the purple channel midline below that.

UPDATE: 9:55 AM

UPDATE:  10:02AM

It should have further to go, as TNX has only closed half the gap so far.  Keep an eye also on CL, which is finding minor TL support.

I realize we’re wading shallow waters, here.  Remember, the goal – as always, in a consolidation – is to shake out a lot of traders before a decisive move.  In this case, we believe the move will be to the vicinity of 2134-2138 late next week.

So, swing traders could quite properly decide not to participate in all these 4-8 point moves.  They’re tiresome.  But, for day traders, they can add up.

UPDATE:

TNX: almost there.

UPDATE:  10:24 AM

Just now reaching 2090, so always a risk of the real bounce here.  Watch CL, and especially TNX – targeting 22.16 to close the gap.  Remember, USDJPY can put a stop to the decline anytime it likes by simply popping back above that red TL.

UPDATE:  10:35AM

Updated CL, will treat upper white channel bound as USDJPY’s red TL — how to put the brakes on this morning’s well-controlled drop in SPX.

I might be overreacting by switching back to long here, as TNX is still stuck at 22.38.  But, little TLs like this one have stopped many, many plunges with relative ease.  So, I’ve learned to be cautious.

Today’s low is still higher than Tuesday’s low, which is higher than Monday’s low.  A big bounce here would fit with the consolidation pattern from which SPX breaks out next week.  Doesn’t mean it will happen, but it would fit.

Same thing going on with ES:

Most traders know this, but indices have a tendency to reach highs and lows around the top and bottom of the hour.  And, the euro close at 11:30 ET is often an important turning point.  We’ll see…

UPDATE:  10:56 AM

At his point, I think USDJPY will dip below the .786 to get SPX and TNX on their way, then likely pop back up after TNX gap closed.  Note that there is another TNX gap down at 21.55 if TPTB are so inclined as to unleash a little fear.

UPDATE:  11:08 AM

Here we go…

Moved the .786 target (2073) over to today just in case things accelerate a bit after Monday’s low is broken.  It would permit a nice tag of the white TL coming up from 2044.  Note, also, that the SMA200 is just below at 2071.66, so a little overshoot would make perfect sense.

Interesting to watch CL, which is usually a lever for higher SPX, being used to club it lower.  ES, at 2080.50, is protesting putting in a lower low.

UPDATE:  11:25 AM

Assuming TNX 22.16 and SPX 2082.90 both come around 11:30, get ready for a nice bounce.  If they don’t hold, then 2073.64 starts to look mighty tasty.

UPDATE: 11:35 AM

SPX thru the .618, but TNX refusing to budge below 22.23. Actually ticking higher.  SPX might be going for the .786 right here.

USDJPY going to backtest the red channel midline, then prob test the white at 124.47ish (or at least threaten to…)

This is pretty fascinating.  Whoever’s controlling TNX is holding it hostage until SPX reaches the designated target.  I feel obligated to put a third target at the .886 at 2069.30 just in case they’re going for the SMA200 tag at 2071.66.

ES certainly looks like it’s going for its .886.

UPDATE:  1:10 PM

CL and USDJPY have both backtested — though the .786 is the stronger one for USDJPY. 1:30 PM target?

If they shoot up through resistance, I’d put aside the short position.  I’d not go long again unless SPX breaks through 2082.90.

UPDATE:  1:18 PM

Both USDJPY and CL are breaking through their backtests.  I suspect it’s a BS headfake to get back down to 2074 or 2071.  But, it might be real.  So, I’ll go long here at 2080 with very tight stops.

Conservative types who aren’t gluttons for punishment, wait until it punches through 2082.90 (if it does) to go long.  TNX only got down to 22.20, so the gap remains open.

UPDATE:  1:30 PM

USDJPY is in no-man’s land (butting up against a convenient channel)… …while CL has reversed off the top of a new channel.  Algos at their best.

Given the size and deliberateness of the bounce, I assume they’re going for a close at the .786, with it being anyone’s guess what happens overnight.  Despite having already racked up some good numbers today, I really hate these kind of days.  It’s little wonder that trading volume has withered away to almost nothing.

If I’m wrong, it’ll push right through the .618 and roar up to close at the red TL at 2092.  Same difference there as to what to expect overnight.

UPDATE:  2:27 PM

The bounce target suggested…

On the 5-min chart, it looks like it came up short.  On the 60-min or daily chart, of course, it looks like today’s low was good enough.  In other words, there’s just enough doubt to throw traders off just prior to the overnight session.  The smaller falling wedge could even prevail and come into play with a backtest of the apex at the .786.

UPDATE:  2:56 PM

Just realized I never posted that VIX chart from earlier.  Watch for a break out, indicating the .786 is the EOD target.  Here’s the close-up:

UPDATE:  3:44 PM

VIX being a tease…wouldn’t be surprised to see a sharp drop at 3:37 to get SPX back to our gray target.USDJPY also close to the vest, threatening breakout, but will have to wait until after today’s close.

UPDATE:  4:01 PM

VIX held up……USDJPY stayed down…  …CL didn’t break out…

…and, SPX is in the middle of the upper and lower targets.  All indications are for another leg down to 2074 or 2069.  But, as can be seen from today’s numerous head fakes, no guarantees.

One last note before I go.  I’ve had several questions today re the analog, and the likelihood of USDJPY reaching the SMA200 — which is way down at 120.05.  The SMA200 should reach the key .618 at 120.11 tomorrow, but it’s still 3.7% below today’s 4:00 px.

It could drop 3.7% in a week (though next week it’ll be closer to 120.60, which would be 3.3%.)  It did it in early October, just before the BOJ expanded QQE on Oct 27.  It did it again in early December, beginning the day after it reached the .618 at 120.11.

If there’s one thing which distinguishes this instance of the analog from the previous, it’s that there has been no triangle.  Instead, USDJPY has formed the really shitty looking red channel and has relied very heavily on the .618 Fib at 120.11.

It has been absolutely necessary in order to keep SPX within striking distance of 2138.  As I pointed out Tuesday in The Good, The Bad and The Ugly, the analog is all about getting SPX up over 2138.  It’s major resistance.  TPTB are pullling out all the stops, and obviously feel they can’t take any chances.

So, if they are using the SPX SMA200 instead of the USDJPY SMA200 to pull it off, who am I to quibble?  It’s their plan, not mine.   They’re just doing what they have to in order to get SPX — not USDJPY — through that target.

Will they be able to?  Probably.  Again, that’s what Tuesday’s post was about.  They’ll break whatever rules, chart patterns, harmonics, laws they have to in order to get what they want.  But, I also believe there are some things they can’t pull off.

We saw this in 2011, when S&P’s US downgrade was an extremely timely catalyst to that analog playing out (or was S&P part of a secret plot?)

All I know is CL is absolutely tanking.  And, I can’t think of a good reason for TPTB to let it tank unless a cheaper yen is in the works.  Abe/Kuroda might very well have made a deal with the US: you crash oil prices and we’ll keep the carry trade alive.

It’s a scenario we talked about months ago in Those Wacky Central Bankers.  If you’ve forgotten, I suggest reading it again.  IMO, it makes as much sense today as it did then.

Someone asked today how SPX would reach 2138 at the same time that USDJPY was diving.  It seems unlikely that they would happen at the same time.  In looking back at the 2013 incidence referenced above, the test was of the top of a channel that it would eventually break out of (when USDJPY broke out.)

continuing…