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Lots to talk about this morning.  Yesterday, ES dropped below the H&S neckline we discussed the night before [see: The Only Charts That Matter], but rebounded above it by the close.  SPX came close to making its way back to its neckline; but, in the end, it failed.  So, technically, it’s been triggered.

We were mainly short throughout the session until reaching 1820, at which point we were testing the Oct 2014 lows.  This turned into a stop-hunting exercise as I noted in the 10:09 update:

There’s an excellent chance they’re going to run some stops at 1820.66 before any serious bounce occurs.

SPX pushed below 1820.66 to 1812.29, where it then rebounded by 63.86 points before running into the top of the falling channel it’s been in since Dec 28.

The culprits in all this action were, as usual, CL and USDJPY.  CL dropped through the bottom of the falling red channel before TPTB realized how damaging this was, and then rebounded by a massive 5.6% off its overnight lows.  Naturally, it had rebounded to well above the channel bottom by the time the US markets closed.For it’s part, USDJPY dropped through the bottom of the large red channel during the night with little effect on futures — which are simple and cheap to prop up during after hours.  But, when it plunged below the channel bottom during the trading session (yellow arrow) carry trade investors took notice and sold hand over fist until it rebounded.continued for members…

Futures soared overnight, but have fallen back below the white channel top at this time.The rising purple channel should provide support, but CL is a crap shoot as to which way it’ll go.  And, USDJPY hasn’t yet declared its intentions.  So, I’ll stay in cash until we see some clear direction.UPDATE:  9:33 AM

There’s a nice little channel that guided most of SPX’s action yesterday.  If the bottom holds and SPX can break above the falling red channel top, then the red neckline at 1885 would make a good initial target.

UPDATE:  9:41 AM

SPX just dropped below the rising purple channel bottom and USDJPY and CL are dropping.  There’s a good chance SPX is going down to test the falling red midline at the SMA5 50 (purple) around 1842.UPDATE:  10:11 AM

CL has broken out of the little flag pattern it’s in and is testing the bottom of the falling red channel.  And, USDJPY is threatening to break through the red midline. It’s been enough to get SPX to the red channel top, where it has some decisions to make.   I’m very tempted to take a short position here, but I suspect it would be limited to the SMA5 200 at 1864 — just 8 points below.  And, who knows if CL is finished with its algo ignition outburst?

Note that I’ve redrawn SPX’s purple channel to include the dip to 1848.98.  Its V-shaped rebound has now taken it to the channel midline — also resistance.

It’s a rare day when Draghi’s comments aren’t coupled with heavy market support.  So, I think it’d be smarter to wait and see if SPX bounces at 1849, and pick up a long position at that point.

UPDATE:  10:26 AM

CL has fallen back to the flag top……and USDJPY is heading down to support as well — perhaps the purple channel .236 line or even white TL.Even ES is doing some backtesting — of the white channel top and probably the SMAs around 1855.  If all these things come together at the same time, SPX should drop to 1864-65 and provide a nice entry point. UPDATE:  10:50 AM

The algos are going strong this morning.  USDJPY continues to push higher just because, and just tagged a TL connecting to yesterday’s highs.  CL has backed off the red channel bottom and might retest the flag top again.  At this point, SPX — which has formed a little IH&S targeting 1940ish, might limit its retreat to the red channel top at 1872.  If not, it could still test the SMA5 200 at the purple channel bottom around 1864.

But, the failure to backtest that obvious support earlier suggests any declines might be hard to come by — at least until USDJPY takes a breather. UPDATE:  11:04 AM

That might be all the backtest we get.  I’ll try a long position here at 1874.28 with tight stops, as the 1864 backtest is still a possibility.  Our objective is the H&S neckline and red channel midline at 1884ish.

USDJPY just popped above the white TL.And, CL is making new highs. Note that it could easily reach the red .236 line (29.72) and maybe even the midline if SPX pops through the H&S neckline.UPDATE:  11:20 AM

Bailing on the long position, as SPX is struggling to maintain momentum even as USDJPY and CL soar.  Obviously there are a lot of real investors with real concerns that would like to take risk off the table after a 70-pt rebound.UPDATE:  11:59 AM

Shorting here at 1887.24 on backtest of neckline and CL tagging its .618.  Initial target is the rising SMA5 10 or 20 — currently at 1878ish.  If those don’t hold, then the red channel top at the SMA5 50 at 1868 is a possibility.

USDJPY has also reached the top of its falling white channel.As I finish typing these words, CL just spurted up past its .618 and is back above 30.  So, the whole premise of shorting here relies on it falling back and catching its breath.  Stay tuned…

UPDATE:  12:26 PM

SPX has begrudgingly backtested its SMA5 10.  I’ll close the short and take a long position here at 1882.51 with tight stops. UPDATE:  12:39 PM

CL is pushing higher and USDJPY is about to break out of the white channel and jump up to tag the .886 at 117.86.  I’d drop this long position fast if it dips below the SMA5 10, as it would likely be headed for the SMA5 20 now at 1880.73. UPDATE:  12:43 PM

Back to cash on drop through SMA5 10.Should get another chance to go long at the SMA5 20 now at 1880.65.  If it doesn’t hold there, then the .500 Fib at 1873.38 is a possibility.  ES TL just now broken…UPDATE: 12:56 PM

Trying another long position here at 1881.25.  Tight stops, as the next support is way down at 1873.49. UPDATE:  1:17 PM

Fell through the channel bottom and is backtesting.  Back to short at 1883.19 for 1873.38 or the SMA5 50, now at 1874.78.  Best target I can see is ES 1868.06.UPDATE:  1:34 PM

There’s the .500 Fib at 1873.38.  Still have some momentum, so probably targeting the SMA5 200 at 1865ish –  another backtest of the falling red channel?USDJPY could be targeting the white TL or the rising purple channel midline.UPDATE:  1:38 PM

Pushing back above the .500, so I’ll close it here at 1873.44 and reopen if it drops back through.  Probably just stalling until the SMA5 200 reaches the red channel top.  Should be there in next 20 min or so. UPDATE:  1:50 PM

Back to short here at 1876.72 for 1864.USDJPY should push through to the purple midline this time.UPDATE:  2:05 PM

It’s slowed to a crawl, which tells me they’re probably waiting until the SMA5 100 crosses the 200 at the red channel top — probably around 2:30 — assuming it stays below the falling red SMA5 10 line.UPDATE:  2:16 PM

Closing the short here at the SMA5 200 and red channel top as planned.  Will try a long position here at 1863.25 with tight stops. UPDATE:  2:19 PM

Not rebounding at all, so it’s back to cash for me for now. UPDATE:  2:28 PM

Better place from which to rebound.  Going long again at 1862.97.UPDATE:  2:33 PM

Taking profits here at 1869.88, but will go long again if it pushes through the SMA5 10 — especially if USDJPY pushes through the white TL again.UPDATE:  2:38 PM

Back to long here at 1871.  Tight stops, as 1873 now overhead resistance.UPDATE:  3:10 PM

Looks like it might roll over again.  I’ll stay long as long as it we don’t see any 5-min bars close below the yellow SMA5 100 line. I suspect we’ll at least get back to the purple channel bottom at 1884ish.  But, ES’ VWAP is 1861.2 — right about where it’s trading.  So, we might flatline here for the next 40 minutes.  USDJPY and CL are both going sideways.

UPDATE:  3:27 PM

I’m going to go to cash here, as it seems they intend to close ES at the VWAP.   I’m probably a little early, as we could easily get a quick pop up to the SMA50 at 1876 gain.  But, I have a splitting headache and need a breather. But, note how both USDJPY and CL are going sideways — even after a bullish SMA10/20 cross. EOD:

I was off my game today — tired and a lovely headache most of the day.  So, I apologize if things were a little jumbled at times.  I just noticed that, at one point, I wrote that “I’d go back to long here” even though I was already long.

I’ve never enjoyed trading or charting on central bank announcement/press conference days.  The meltups are not fun to trade, as they’re entirely manufactured, follow few rules, and you never know when they’ll peter out — if they do.

The upshot of today’s action is that we backtested the neckline of SPX’s H&S Pattern.  That’s it. SPX is still below the neckline, and still below the red channel midline.  This is a bearish condition, and suggests large, additional declines.However, TPTB have been exceedingly careful not to allow large declines over the past 5 1/2 years.  Will they just throw up their hands and declare this one a lost cause — especially when they have the tools to manipulate it higher?  We saw it today, with CL and USDJPY spurting much higher, driving SPX up 4.2% off yesterday’s lows.

There’s obviously a lot of selling pressure — maybe similar to July-Aug 2011.  But, I believe all it would take to stabilize markets is Kuroda announcing that USDJPY is going back to 125, or 135.  Oil is so cheap now, devaluing the yen wouldn’t have anywhere near the impact as a year ago.

We could see the H&S play out, and SPX test the bottom of the rising red channel below in the 1500s.  On the other hand, we could run into another October 2011, when SPX’s channel broke but TPTB found a way to put it back together.Until SPX closes below 1820, I continue to advise caution — small bets to take advantage of intraday swings and back to cash overnight.  If, on the other hand, it closes back above 1887 or so, then bulls can breathe a little easier.  The RSI charts indicate it’s not too late.  But, again, it can’t happen without CL and/or USDJPY moving dramatically higher.  Today was a start.  Will they keep it going?  It must start right here, right now.