Critics are roundly denouncing the Fed’s latest failure to launch as gutless, feeble-minded insanity.  And, they’re right.  There will come a time when the folly of not doing more to stave off the inflation part of stagflation is obvious.

But, for now, the only data they’re dependent upon is the “market.”  And, all the major futures and currency pairs we watch are responding exactly as expected.  The weakness in equities over the past several weeks was all about holding the Fed’s feet to the fire.  With SPX perched on the precipice of critical support, a rate increase was most unlikely.

As I wrote several days ago in What to Expect:

By keeping stocks at or near support, they’ve made the Fed think.  And, if they’ve played their cards right, they’ll make the Fed flinch.  At a few points above last year’s highs, there is no room for a decline.  Any decline.  They sacrificed a few months of rising stock prices for a few more months of ZIRP.

Looking at targets this morning…    USDJPY didn’t waste any time in tagging our next downside target, leaving it in another make it or break out position.

Congrats to those of you who hung in there for the payoff.  To those who didn’t, repeat after me: “USDJPY is only a tool.  USDJPY is only a tool…”

continued for members…

ES seems likely to reach the 1.272 at 2169.12 early on.This leaves SPX likely to tag 2177.83, the purple .786, even though the channel top will need to be topped.  If VIX can break down below the white channel bottom and CL maintain its advance, it should be able to push beyond. EURUSD is soaring on DX weakness. DX is testing the white channel bottom, and looks like it’ll continue slipping.

CL is running into channel resistance, but is back above its SMA100.

VIX has plenty of room to influence SPX higher.

UPDATE:  9:36 AM

SPX just tagged the .786 – just above the channel top.  Could get a pullback here, so watch your stops or take profits.  I show the channel top at only 3 points below (2174.75), so I don’t believe it’s worth shorting at this time.

However, ES has backtested an important TL that could prove troublesome.

Here’s the bigger picture.  It has been quite influential in supporting prices, and ES got knocked back by 35 points before popping through from below after the Brexit debacle.

We’ll watch CL, VIX and USDJPY closely for signs of the support that’s needed to push through.  If SPX can’t clear the white channel, it would be quite a loss to the bulls – witness the Sep 7 failure that cost SPX 68 points.  So, I believe they’ll prevail.

UPDATE:  11:29 AM

The backtest might dip a little lower than I originally expected.  ES’ SMA50 is at 2164.52, the equivalent of 2162 on SPX.  I’d take profits here if you didn’t earlier.

SPX’s backtest could extend to its SMA50, but I seriously doubt it.  Holding the falling white channel is much more important than backtesting the rising white channel.

UPDATE:  2:21 PM

ES is finally dipping for the SMA50 backtest at 2164.50.  It came within .26, and looks like it’ll dip slightly lower.  Note the purple line running through here, as well.  It’s a channel top from 2014 that’s also being backtested.

It can be seen as the huge rising purple channel in the chart below.

There’s a chance SPX will slide further and backtest its own SMA50 at 2168.49.  But, if it were to occur, I would regard such a move as a head fake.  ES’ SMA5 200 will cross the SMA50 by around 6PM ET, and I think it’s unlikely to break down.

The benefit of taking all day to retrace is that SPX will be able to backtest the rising white channel without giving up too much.  At the close, I show it as being right at the .707 at 2171.93.  Also, note that the SMA50 is increasing around .50/day and that the SMA5 100 is rapidly rising and should reach 2171 by the EOD.

Updates on a few other charts:

I’m going to leave you with that and take off early today.  I’ve put in about 60 hours so far this week, what with the BoJ and FOMC meetings, and I’d like to focus on some long-overdue charts.

Depending on how it goes, I might take tomorrow off all together.  It’s been a good, but very long, week.

As always, watch your stops, and watch out for those head fakes.

GLTA.