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Friday was another fun day, with our call to short at the open and take profits at 1858.83 accounting for 1.8% of our ultimate 2.73% gain on the day.   We even got the close we had expected, at 1880.33.

Keep an eye on VIX just in case they go for a last minute monkey-hammering to get back to the H&S neckline at 1880 or so.

Today, it’s all about USDJPY which is either at or very near very important support.  Will it awaken?

After USDJPY finally found a bottom at 75 in October 2011, it soared — providing much-needed firepower for stocks to embark on an unending rally via the transmission channel known as the yen carry trade.

By the time USDJPY had retraced 61.8% of its losses from 147 in 1998, SPX had almost doubled from its October 2011 lows.   But, USDJPY had run out of firepower.  We suspected it at the time, but wouldn’t know for sure until months later, the BoJ had found its happy place.  USDJPY would trace in a range of 115-125 for the next year.Last week, it again reached the bottom of that range.  And, as expected, it is enjoying a strong rebound.  It’s been enough to send the futures as much as 32 points higher, and has even provided cover for CL — still languishing near 30.

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SPX should be just as stimulated by USDJPY’s bounce, and should respond with a return, for starters, to the purple channel .236 line at 1946 — though the initial push will likely run into resistance at 1900.As discussed in our big picture post last week, 1856 was a critical level for the bulls to hold — from a channel, chart pattern and a Fib standpoint.  A drop through the neckline of the large H&S Pattern would target 1630.  So, I expect TPTB to bring out whatever ammunition it takes to keep things on the rise.

UPDATE:  9:32 AM

Here’s the 1900 resistance.  SPX should ultimately push through.

It will depend on USDJPY pushing through the falling purple channel midline and/or CL rebounding off 30.  First, they need to bounce off supporting TLs. With CL dipping below support, SPX might intend to fill the gap at 1885.37 before pushing higher.

UPDATE: 9:51 AM

2000 proved to be pretty strong resistance.  SPX is close to filling the gap, and USDJPY tagged its rising red TL of support.  Should be close to a turn here. UPDATE:  11:20 AM

SPX just reached the 1885.37 target and should get a bounce here at the purple channel bottom.  I’d take a long position here at 1885.21, though it could leak a little lower to the SMA5 50, currently at 1884.26.  Immediate target is 1894.79, followed by 1905.19 if it can push through.

UPDATE:  11:43 AM

There’s the 1894.79 target.  I’ll hold a little longer while we see if it pushes through.UPDATE:  11:45 AM

Taking profits here at 1895.63 on USDJPY and CL weakness.  Will go to cash while we see how it shakes out.  If the bulls are lucky, it’ll catch the SMA5 10 or 20 at 1893.48 or 1890.57. 

If it can push through the white channel top, now at 1897ish, I’d play the bump up to the white .618 at 1905.19.  But, at this point, CL and USDJPY are looking iffy.Updated USDJPY chart — looking downright weak.   CL broke out, but is running into the white channel midline.UPDATE:  12:09 PM

SPX just reached the channel bottom again.  Fifth time’s a charm?  Pretty much depends on CL.UPDATE:  12:12 PM

CL just completed a nice backtest.  I’ll take a shot at a long position here at 1886.22 with tight stops. UPDATE:  12:18 PM

Jumping back out here at 1885.72.  Looks like it’s headed for the SMA5 100 at 1880.47.UPDATE:  1:08 PM

Several tries at the SMA5 100 at 1880.87, but no luck so far.  I suspect USDJPY will reverse down to the .886 at 117.32 in order to get a proper tag before the rebound begins in earnest.  I expect to go long at 1881ish if CL and USDJPY are cooperating. UPDATE:  1:22 PM

Shorting here at 1887.59 as USDJPY should reverse for the .886.  The target is 1881.08, at which point I expect to go long if USDJPY or CL is reversing again.

I wasn’t going to short for 1881 — too few points — but, this nice little bump above 1887 makes it worthwhile.

Note that CL is breaking down again, too.UPDATE:  1:32 PM

That’s close enough.  Back to long here at 1881.11, targeting 1893ish.  Tight stops, as there’s still some downside risk from USDJPY.  CL did the honors, leaving USDJPY somewhat in limbo. UPDATE:  1:53 PM

Too much back and forth for my taste, and CL’s hinting at lower lows.  Back to cash here at 1881.15.Given that it’s been stuck at this level and USDJPY and CL are still suggesting lower, I think they’re targeting the white .236 at 1875.92 at 2:35ish in order to flesh out the rising red channel I sketched in earlier.  We’ll take another look at a long position then.

UPDATE:  2:17 PM

USDJPY bottomed out, so I’ll assume SPX will too.  Back to long here at 1869.62 — tight stops still a very good idea.UPDATE:  2:44 PM

CL is slumping again, and USDJPY hasn’t been able to rally.  Back to cash. UPDATE:  3:27 PM

SPX just spurted past the channel bottom.  Long here, but careful of the SMA100 at 1882.62. UPDATE:  3:32 PM

Moving too fast for me to post… but, back to cash on full USDJPY backtest.  Note that SPX is back to the red channel midline and H&S neckline.  Could easily push higher if CL gets into the act or USDJPY pushes past channel bottom backtest. I’ve been behind a little bit all day — slow drops and fast rebound.  Didn’t think it would dip below the red channel bottom, and thought the rebound would at least pause there.  If SPX closes back above the H&S neckline at 1880ish, it’s a positive close and we should see some follow-through tomorrow.  But, CL is closing weak and could easily be headed for 28.80.  I’ll post an update on CL and GC after the close.