With both the Fed and the BoJ meeting Tuesday and Wednesday, huge currency moves are almost certain.  With them, the potential for huge equity moves is quite elevated.

It has been 10 days since I released an alert [see: Psyops and the FOMC] that stocks were at a critical support level.  The S&P 500 has tested that support three times since then, while central bankers have repeatedly shoe-horned the dollar higher and VIX lower.

Were they forcing DX higher in anticipation of a disappointing FOMC decision?  The next several days will be a crap shoot, with lots of opinions but little certainty about what to expect.

continued for members…

I’ll go around the horn, with the state of “markets” this morning, and offer my best guess as to what to expect.  But, then I’ll take the rest of the day and update other indices, commodities and currency pairs.

USDJPY is once again breaking down, indicating that most traders don’t seem to believe the BoJ will ease any further.

NKD seems to reflect the same sentiment.While, EURUSD reached the SMA200 as expected and is getting a bit of a bounce.

DX, itself, is giving up some of its gains from Friday’s ramp fest.

And, CL is selling off this morning after having helped ramp ES higher.

ES is up about 7 points as we go to press.

This leaves SPX with a better than average chance of reaching our upside targets in the next few days.

Will VIX support it, now that it’s nearing support at Aug 26’s highs?

I’ve been a big believer in the potential for a rate hike in September, but have maintained that the only way we’ll get one is if stocks have rallied so strongly by Sep 21 that the sell-off could be contained.   I originally set a target of 2200 as one which would give them the wiggle room they needed.

2200 is still 50 points away — not that far, but difficult under the circumstances.  And, if the BoJ is expected to disappoint as did the ECB, then 50 points is a very long ways away.

I’ve thus set an upside target (yellow) at the bottom of the rising purple channel where it intersects with the falling white channel top — about 2175.  If SPX can get there, I’d put the odds of a rate hike at no more than 40%.  If it can break out, then greater than 50%.

UPDATE:  10:02 AM

Running into the first real resistance of the day.  VIX has run into support at the yellow TL and SMA100. CL has recovered almost all of this morning’s pre-opening losses. And, ES has reached its SMA10.  It needs to punch though in order for SPX to reach its SMA10.

A close-up shows a potential backtest of the white channel midlines around 2147-2148.

UPDATE:  11:02 AM

That qualifies as a backtest of the white midline, even though it doesn’t look all that complete. 

But, look at the move in CL that was necessary.

I’m working on DX right now.  Here’s a preview: a nice big triangle that Friday’s high helped establish.

UPDATE:  12:13 PM

Breaking down.  Close long here at 2146.95.  They might try to save it at the white channel .236 line at 2141, or more likely, the SMA5 100 or 200 around 2140.  FWIW, this morning’s gap can be closed at 2141.67.

Not a very promising scenario for the bulls to have CL falling apart.

UPDATE:  1:01 PM

Going long again at 2141.22.  SMA5 200 tagged and gap closed.  I’d recommend very tight stops, as CL hasn’t reversed and the channel bottom (2136.75) would represent better support.

UPDATE:  1:19 PM

Back to cash at 2143.27, as CL is breaking down further, which means SPX will likely do so as well.  If CL finds its bottom and bounces, this would likely change things.  But, for now, it’s looking rather shaky.  I’d be comfortable going short, but note that it might only reach 2137 or so.  And, of course, the 1.618 Fib itself is at 2138.04.

UPDATE:  1:36 PM

Going long at 2136.01 — bottom of the white channel.

If it drops through 2134.72, I’d want to strongly consider re-shorting.

UPDATE:  2:16 PM

I’d take profits here at 2143.56.  CL tested this morning’s lows on just plain old weakness.  But, VIX’s reversal has helped SPX rebound to channel resistance.  I’d stay on the sidelines unless SPX can push down below its SMA5 200 (2141.77), again.  VIX could clearly break down further, which would likely push SPX higher.  But, CL is acting as an anchor, offsetting the inclination to ramp it higher.

While the white channel bottom bounce back to green for the day is a net positive, SPX gave up quite a few points off its highs, and almost broke down in the process.  And, CL looks very likely to fall further.  Most of all, I don’t see much effort being put into igniting a big rally at this point.

UPDATE:  3:32 PM

This is a rather weak development.  I’d go back to short if SPX breaks down and VIX breaks out.  The only problem is that VIX’s SMA5 200 is just overhead, and has done a good job of limiting breakouts, as has the falling white channel top.

UPDATE:  3:50 PM

This is a rather weak close setting up.  While I think we’ll head lower tomorrow, short here and overnight at your own peril.  We saw, this morning, how vigorously TPTB can ramp things overnight.  We have housing starts and permits at 8:30, and they often move prices a bunch.  If you’re a gambler or can hedge/watch your position closely, this is a good short entry point.

I’m going to take a break, will finish the DX post in a little while.  I have a couple other ones to post as well.