As discussed yesterday, stocks spent the night building a cushion based on VIX (currently off 5.4%) in preparation for tomorrow’s FOMC announcement.  It started just before the close, yesterday, and has built to a 6-pt gain in the futures.Actually, it’s been less of a rally, lately, and more of an effort to maintain ES at levels above its IH&S Pattern target reached back on Jun1.  Remember the mantra “stay fully invested, because you never know when a sudden rally will appear out of nowhere and you can’t afford to miss it”?  These days, it’s the corrections that pass in a flash, like Friday’s 31-pt plunge which was reversed so quickly that it won’t even register on daily charts.

But, I digress.  Today’s action is all about putting more distance in between SPX and the Support Below Which it Must Not Go in the wake of the FOMC meeting.

continued for members…VIX’s latest collapse leaves SPX broken out of the falling purple channel — although it’s done that before and fell right back in.  Resistance starts at the yellow channel midline at 2437ish and disappears rapidly after that. I’m still looking for big currency moves across the board… …and, a breakout by CL when needed. My base case remains that the FOMC will not hike rates.  But, if they do, I expect it to be couched in exceptionally dovish language.

UPDATE:  9:47 AM

Potential resistance here.  For anyone playing the breakout, we’ll likely see at least a pause.  Ideally, we’d get a backtest and gap close at the SMA5 200 or SMA10 at 2429.39.VIX has retrace nearly .618 of its latest bump and seems to be reversing.UPDATE:  10:48 AM

Quick progress report…   Many times the SMA5 20 provides support on the initial pullback following a gap higher.  This one could easily play out the same if DXY holds its SMA10. But, I’m looking for DX to break down.  The question is when.  Judging from USDJPY, there’s plenty of selling pressure building up.  I still think we’ll get the SMA5 200 tag, and maybe the SMA10 tag for good measure. UPDATE:  11:01 AM

There’s the SMA5 200, or probably close enough.  I think it’ll probably nudge lower, but that should be it for the easy money.  I’d cover here, or at the very least tighten up stops.  If it drops through 2431, the SMA10 is just t below at 2429.39 and the gap is at 2429.73.Note that ES has already backtested its SMA5 200 and SMA10.UPDATE:  12:35 PM

Here are the two mostly likely scenarios for the remainder of the day.  History favors the 2442.73 target, but the 2429.39 target is only slightly less appealing.

The hitch for bulls is that VIX tagged and bounced off its SMA10, so it could be done for the day.  I expect the Fed will want to get it higher than this in order to have maneuvering room for a smackdown tomorrow.

Note that SPX could conceivably tag both targets — the .886 and then the SMA10.  But, it’s presumptuous of me to suggest such an elegant forecast with any certainty. I continue to think the real opportunity, tomorrow, lies with currencies and oil.  Here’s a quick summary:

– DX, currently at 97.05, going to 96.07-96.14
– EURUSD, currently at 1.1199, going to 1.1470
– USDJPY, currently at 110.05, going to 108.82
– CL, currently at 45.63, going to 49.61, and then on to 50.96 by July 3

The bonus, high risk call is GC, currently at 1266.50, going to 1348.60 or 1377.50.

For those interested in CL, please note that it has broken out past the red TL dating back to May 25.  It’s not a big break out, and it is clearly doing so just to push equities higher.  But, the upside potential is there and, with the TL, we have a pretty clearly-defined place to put stops. UPDATE:  2:37 PM

SPX just missed a clear upside target at the proper time/place, meaning it’s not going to make it there or is delaying the tag in order to make it at a higher level.  It’s pretty much up to VIX, and whether it continues to stay in the channel or is ready to break out.  I’d ditch the long position and short if it drops through the SMA5 10, or at least tighten up your stops.I have jump on a conference call, will be back in a few.

UPDATE:  3:56 PM

Nothing particularly new other than some weakness showing up after VIX’s break out.  I’ll keep my targets right where they are.As always, don’t even think about holding short overnight unless you can hedge or can handle the potential gap risk.