One nice thing about patterns is that they give you something to hang your hat on. When we drew the Inverted Head & Shoulders Pattern on Jul 3 [see: Holiday Headfake] there was nothing in the news to suggest a 100-pt rally in the ensuing week.
Yet, SPX and ES landed within a point or two or their IH&S targets yesterday all the same. Likewise, all the news was rosy yesterday — incessant talk of renewed buyout fever and imminent, glowing earnings reports.
Yet, completion of the pattern, combined with a channel midline, put a pause on the rally right where expected. With its SMA200 now a mere 30 points below its 2.24 extension, SPX can backtest any time it likes with plenty of support around 2700.
In fact, if ES is able to hold the (formerly broken) channel into which it reinserted itself, the damage would be limited to 20-30 points.
One key: VIX. So far, it has put the brakes on at a backtest of the recently broken straw-man trend line. If it can remain below the red TL and the SMA200, and USDJPY keeps ramping, stocks will suffer a mild pullback. 
If the coming drops in oil and gas get going, then SPX will do well to hold 2750 and, depending on the PPI/CPI numbers due out today and tomorrow, could test 2700 again.
If we should dip below the SMA200 and 2.24 extension again, then it’s time to hold on to your hat.
continued for members…SPX’s purple channel midline would put it around 2760. The nearest real support, though, is the SMA20 and white midline at 2755.
USDJPY is attempting a rescue. As we discussed the other day, a breakout above the white channel top would be quite bullish and/or could help in the event of a downturn. 
CL’s white channel top continues to hold. Our target remains the SMA200, presumably where it crosses the white midline. 
RB has backed off the white midline, SMA50 and SMA10.
One additional area of concern for bulls…TNX has broken out of the falling channel from mid-May. While it’s still very close to our target price range (26.56), TPTB now have to begin worrying about July CPI if oil and gas don’t decline — and, virtually all of the headlines are bullish.
UPDATE: 12:30 PM
So far, ES has managed to hold the fan line of the Jul 5 lows and white channel bottom. 
As we suspected, it has held support due to the strength of USDJPY, a breakout for the moment…
…and the inability of VIX to push above the backtest.
If it does break out:
CL is finally letting go a bit… 
…and RB’s bounce has come undone.
I have to run to a meeting. Will be back around the close.