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I sat down to update the CL and GC charts tonight, but quickly realized there’s no point until the following pattern is resolved.  How about it, central bankers?  Are you ready to let the markets run where they will?

Because, ES’ Head & Shoulders Pattern below targets 1530 — another 17% lower.  For anyone keeping track, that’s a 28% drop from last May’s highs.  Today’s key level, 1837ish.  A close below here would be quite bearish.

BTW, the only reason the above chart is where it is…?  This chart: the USDJPY — which has gone nowhere for the past 14 months.  It’s also perched on a precipice.

Put them together, and the relationship is unmistakable.  Every time USDJPY dips to the bottom of the red channel (at the yellow arrows), ES takes a dive.  In fact, the dives have been deeper with each successive dip.

SPX completed its own H&S Pattern last week [see: Are You Happy?], but hasn’t been able to rebound because it was waiting on ES to arrive at its own line in the sand.

So, come on, central bankers.  We’re curious.  Have you more tricks up your sleeves; or, are you finally ready to take the quotation marks off the “markets?”

continued for members…UPDATE:  9:15 AM

SPX should shed the requisite 20-30 points on the opening, as ES is still off 28.50 points with 15 minutes to go. But, note that USDJPY is back above its neckline.  And, CL has bounced off its lows.If the initial drop takes SPX near yesterday’s lows at 1856, or even slightly below to run some stops, then the rebound should aim for the SMA10 at 1930.  It won’t likely reach it all at once, but I’ll be looking for signals that allow the construction of a rising channel that reach it in the next few days. The key, as always, will be when USDJPY and/or CL turn around.

UPDATE:  9:42 AM

ES just reached a TL of potential support. USDJPY backtested a channel midline, and CL is testing a SMA5 100.  So, I’ll close our short and go long here at 1847.14 — obviously with very tight stops.

There are multiple bounce targets, starting with the falling red channel midline and white .886 at 1856.  If that’s topped, then I’ll be looking for the red channel .786 line and purple .618 at 1874, then the gap at 1881 and, finally, the red channel top.

Hard to say where that might occur, as it’s obviously sloping rather steeply.  Presently, it’s at 1887; at the session close, it’s closer to 1874.    So, we’ll make 1874 our most likely bounce target for now — assuming SPX makes it back above the afore-mentioned resistance.  USDJPY and CL will need to cooperate, or all the above is gibberish.

UPDATE:  9:56 AM

SPX is leaking lower on CL weakness.  Going to cash here at 1845.38. UPDATE:  10:02 AM

Note that USDJPY is testing the bottom of the huge, red channel and purple channel .236 line.  It seems very reluctant to drop through it.This leaves CL as the lone bad boy in the room.  Since it broke through support, it is probably heading for the red 1.618 at 28.11.  But, it could just as easily turn and push back through that broken TL.ES just reached the .886 Fib.And, so I’ll take another stab at a long position in SPX if each of those can break through overhead reistance, and short if they cannot.  The next downside support would be the purple 1.618 at 1830.88 and then the Oct 2014 low of 1820.66 itself.  We’ll want to watch very carefully what happens when the SMA5 10 catches down to the index.UPDATE: 10:20 AM

USDJPY clinging to support……but, CL is slipping back below the midline towards 28.11.  SPX is slowly closing in on the downside target, whichever it is. But, at this point, it can’t reach either unless ES makes new lows — which it is threatening to do. Just to recap: we’re on the sidelines, waiting for–

• USDJPY to break above the white channel midline and confirm the rebound
• CL to stop falling, possibly at the red 1.618 at 28.11
• ES to hold 1829.25

The alternative case, which seems somewhat less likely to me:

• USDJPY’s purple channel breaks down
• CL drops through 28.11
• ES makes new lows
• SPX follows

UPDATE:  10:33 AM

Everything just broke down.  Back to short here at 1838.25, targeting 1830.88 and then 1820.66 as noted earlier.Updated USDJPY, CL and ES: USDJPY might be setting up for a backtest of the falling white channel — could produce a bounce.ES seems to be headed for 1814.88.UPDATE:  11:00 AM

USDJPY and CL look done, even if ES and SPX don’t quite.  Should be very close, with SPX 1821ish and ES 1814.88 still looking good for a turn in the next 10 minutes. UPDATE:  11:11 AM

Davos bump? It appears as though SPX is going to push back above the SMA5 10 here on CL and USDJPY’s bounce up through their SMA5 10’s.  I’d go back to cash and wait to reenter if it drops back below 1830 and USDJPY and CL back off their SMAs.  Good possibility SPX and ES will test their SMA5 20s first (1837 and 1830 respectively.)UPDATE:  11:23 AM

Back to short here at the red channel .236 line at 1834.48 as CL and USDJPY are reversing lower.  I know they’re trying to turn it around for the euro close, but it’ll be interesting to see if anyone jumps in and buys in the last few minutes with the “market” being down almost 3%. UPDATE:  11:36 AM

USDJPY is pushing slightly above its red channel bottom.  Could be a head fake, but be very careful if SPX pushes back above the SMA5 20.UPDATE:  11:56 AM

Getting close on ES – note it could be 1814.88 or 1813.53.  Either would work.  1814.88 would mean SPX gets very close to 1820.66.   1813.53 could put it slightly below. UPDATE:  10:09 AM

That’s close enough for me.  Back to long here at 1821.60 with very tight stops.  Why?  There’s an excellent chance they’re going to run some stops at 1820.66 before any serious bounce occurs. If <1820.66 is in the works, watch for CL and USDJPY to signal it. UPDATE:  12:22 PM

Just pushed through.  Back to short here at 1818.55.Next support isn’t until USDJPY reaches bottom of purple channel or ES the falling white channel at 1800.  We’ll call it 1808ish on SPX. UPDATE:  12:30 PM

USDJPY just reached its support, so I’ll close the short on SPX here at 1814.39 — even though ES looks like it could go lower.  I’d like to see it reach that channel bottom and bounce and/or CL/USDJPY bounce before going long.  Happy in cash until then. UPDATE:  12:54 PM

ES just pushed through the purple TL, so it’s back to long here at 1817.85.USDJPY and CL need to also push through resistance for this move to have any legs. UPDATE:  1:04 PM

Nice bounce. USDJPY and CL just pushed through resistance.  I’ll take profits here at 1831.18, go to cash and wait for some back-filling — probably around ES 1815 and SPX 1822. 

Remember, ES needs to get back to 1837ish and SPX to 1880 in order for the necklines to hold.  This means that SPX probably won’t make it before the close — though ES could. And, though we haven’t said much about it in the past couple of days, TNX just reached its next level of support after dropping through key channel support at 20.2.UPDATE:  1:18 PM

Back to long here at 1821.09.  Tight stops are advised.  Next target is the falling SMA5 50 (purple) probably around 1831.CL and USDJPY both have a clear channel back to the top of the larger falling channels should they like:  USDJPY around 117.2 and CL around 28.55. UPDATE:  1:35 PM

SPX just reached our 1831 target.  As before, I’ll take profits and see if there’s more to come after some backfilling.  Shouldn’t be much of a drop — probably just to the rising SMA5 10 around 1828ish.UPDATE:  1:38 PM

Not much was an understatement.  Back to long at 1831.11 on the push through the SMA5 50.  Just be careful, as the backtest might now include the SMA5 50 itself.   USDJPY faces the white channel midline and CL the purple TL. UPDATE:  1:50 PM

That’s probably enough for now.   Back to cash here at 1846.09. ES just backtested the important neckline it broke earlier…and, CL and USDJPY look like they need a rest.I need to take a quick break, will be back in 5.

UPDATE:  2:17 PM

CL broke out of the rising red channel and backtested it for good measure.  USDJPY is above the white midline and aiming for the white TL at 116.7ish.  ES is back to the purple neckline.  And, SPX is back to the falling red channel midline.  In other words, things are pretty stable at the moment — with a good chance of another wave higher into the close.

I’d hold off for now, as I think ES is waiting for the SMA5 10 to catch up with the SMA5 200 at 1836.50ish before pushing higher.  In fact, we could get a lot of whipsawing between now and then, with a close right at ES 1837. UPDATE: 2:34 PM

I’d take a long position here at the SMA5 20 at 1837.12.ES tagged the white channel midline; and, USDJPY and CL are both pushing higher. If this follows a pattern I’ve been tracking, SPX will pop sometime between 2:50-3:05 and then settle slightly lower into the close.

UPDATE:  3:07 PM

That might be it for the pop.  I’ll take profits here at 1854.97 and go to cash.  the SMA5 200 is still hanging out there at 1864.50, but I think it would require CL to break out of the falling white channel — something I’m not too sure could happen. UPDATE:  3:29 PM

Didn’t think they’d be able to pull it off, today.  But, SPX is closing in on its neckline too.  There might be a chance to take one last long position when the SMA10 crosses the SMA200 at 1864.42.  If SPX will backtest that, then it’s likely to spurt up to 1883ish by the close.  Without the backtest, it’s just an 8-pt move into the close and probably not worth the aggravation.UPDATE:  3:34 PM

Here’s the backtest.  I’ll try a long position here at 1864.67 and see if we get a pop into the close.  CL and USDJPY have also backtested broken resistance, so should support this move. UPDATE:  3:45 PM

Quickly stopped out on that one.   Back to cash – probably for the day, unless we get a bounce back through those SMAs or a bounce at the SMA20.UPDATE:  3:57 PM

Closing on a slightly negative note — not back above the SPX neckline.  I think we’ll probably gap higher in the morning, though I’d not hold long unless you can watch or hedge it overnight.