Yesterday started out with a VIX-driven pop that quickly fizzled and nailed our downside target before rebounding and hitting our upside target.  Since SPX closed right at resistance, it needed a boost overnight.  So, why not go back to the same clever trick that worked the day before?

Yes, VIX’s red channel has broken down again.  And, the algos are eating it up… to the tune of +5 on ES.

Will it pop and drop, again, or will this one take?

continued for members…The big difference, this morning, is a strong pop in USDJPY.  And, CL has held the white midline on (what else?) rumors of more/stronger/better compliance blah, blah, blah.ES is building on its overnight gains, which means SPX will “break out” of the falling and rising white channels and stands a very good chance of reaching the 1.272 at 2420.20. What undid the pop yesterday morning was pressure on VIX that drove it right back into the rising channel and ultimately, to the channel top.  So, I’d keep a very close eye on VIX this morning, to see if it reenters the channel or reverses there and tests its former lows.

UPDATE:  9:38 AM

This is a make or break moment for SPX.  Note that VIX has reentered the red channel but is testing the SMA5 200.  USDJPY has backtested its SMA10 and SMA5 10/20.  If they both reverse here, SPX has an excellent chance of holding the yellow channel line — making this a good buy signal.  If VIX or USDJPY keeps going, then we’re looking at the yellow midline and gap close at 2412ish. The difference in yellow channel lines is shown in the daily chart below.  The smaller yellow channel is a subset of the larger one, wedged in between its .236 and midline.Of course, not even the larger yellow channel fully represents the potential downside.  We’d have to look to the purple channel whose bottom is around 1750 for that.Zooming in a little, we can see why breaking out of the smaller yellow channel has been so important — and, such a challenge.SPX was able to break out past the dashed midline between Feb 15 and Mar 20 when USDJPY spiked from 112.60 to 115.50, VIX started spending nearly every session below the yellow channel bottom, and oil extended its rally.

USDJPY and oil subsequently tumbled, leaving VIX the only trick up the market’s sleeve.  As we discussed over the past two days, there’s a lot riding on a stronger dollar.  And, it’s going to get increasingly difficult to convince investors that a rate hike is on the way.

UPDATE:  10:17 AM

SPX is holding the “breakout” so far.  It’s clinging to the SMA5 10, with the SMA5 20 on the way.So far, VIX and USDJPY are also doing their parts. A reminder: we’re looking for 2420.20 (the 1.272) and, if that is broken, the IH&S target at 2430.23.  I’m going to duck out for some meetings, and will check back in later.

UPDATE:  9:57 AM

There’s the 1.272 target. USDJPY is back above the channel line and SMA50 after bouncing off TL support.  And, CL just “broke out.”  So, SPX should have a little help in popping up to 2430, or at least remaining above 2420. UPDATE:  12:57 PM

ES just reached its 1.272 as SPX reached the yellow channel line.  There’s a good chance we get at least a pause here.  Swing traders might wish to take some money off the table, while scalpers might wish to try a short position with very tight stops. 

Note that ES has a little further to go to reach the yellow channel top — closer to 2428, also its IH&S target.   SPX’s IH&S target is still higher at 2430, so I view this as a pause more than anything.  I’d be surprised if it dropped much — say, 2420?  BTW, there is no harmonic justification for a reversal here.  That would have required a reversal at the purple .786, which obviously didn’t happen.

UPDATE:  3:58 PM

ES just reached the yellow channel top and IH&S target.  It’s a good thing, too, b/c VIX has run out of things to break down below.  SPX stil has a couple of points to go before reaching its, but I’d rather exit here with ES’s tag. To short for those who can hedge or deal with the overnight gap risk. UPDATE:  EOD