Yesterday’s forecast worked out reasonably well.  From the member section:

In the meantime, I can easily imagine a pseudo-breakout that reaches the white .786 or .886 (yellow dot) into the end of the week.

The 26-pt spike took SPX to 2126.65, less than one point away from our yellow dot at the .886 Fib — close enough for government work, which is pretty much what it was.

The mainstream media consensus was that the factors which produced the single biggest opening minute ramp job since 2011 [per Eric Hunsader at Nanex, see HERE] consisted of mixed economic news and lower-than-expected inflation that would cause the Fed to hesitate in raising rates later this year.

This, on the same day that the IMF floated the idea that central banks will need to act as the buyers of last resort the next time “markets” crash — which, of course, is exactly what will happen if investors ever get the sense that the central bank intervention (which drove prices to unsustainable levels in the first place) is waning.

While we’ll never tire of nailing our forecasts, we yearn for the days when something other than central bank intervention and joined-at-the-hip algorithmic HFT ramp jobs determined stock prices.

On to today’s forecast.

continued for members…USDJPY continues to show its cards, moving below the red channel midline again this morning.  It would appear Kuroda’s last speech to the Diet talking down the yen was — as expected — designed to pave the way for the next QE expansion.

The catalyst will be a drop in USDJPY that produces a drop in stocks that scares the Japanese Powers That Be enough to support another leg down for the yen (producing a rise in USDJPY and stocks.)  Recall that this is the central tenet of the analog we’ve been following for the past few months.

I believe the current sell off will produce a tag of the SMA100 at 121.60ish early next week — ideally the 23rd — followed by a tag of the SMA200 in late July closer to the yellow .618 at 120.11.   Note the SMA100 plot is now perfectly aligned with the rising white channel midline.

Alternatively, next week’s test of the SMA100 could overshoot a little and tag 120.11 at the same time.

This drop would normally be offset by an offsetting spike in CL, which has been inching along the bottom of the rising purple channel.  We’ve seen several instances of it bouncing back intraday from drops below the channel.

However, I believe the CL’s purple channel is about to fail.  I expect the entire advance to pivot to the less aggressive slope illustrated by the rising white channel in the chart below. If so, the next stop should be a tag of the white midline (red dot.)

The net effect would be to facilitate the drop to SPX 2050 (red dot below) we’ve been expecting.  The SMA200 reached 2049.82 today — which nicely overlaps the .886 at 2049.76.  It’s unlikely — though not impossible — that the drop will occur today, a Friday.

It’s more likely that SPX will appear to backtest the white .618 intersection with the gray channel .786 line at 2110-2112 (purple dot) or the SMA20 where it intersects with the broken red channel top at 2105.34 (white dot.)

A bounce at either of those places would leave bulls complacent going into the weekend and give the big boys a chance to position themselves in advance.

Remember, a drop in USDJPY means the dollar is weakening relative to the yen, and a weak dollar normally benefits CL.  The exception is when the euro is plunging, which benefits the dollar.  It’s a scenario we’ve seen on a number of occasions when the market was melting down.

Coincidentally (or not) DX reached our initial support point yesterday and is approaching even stronger support at 92.32.  All we would need is a catalyst for the euro to plunge, say, a Greek default…?

That’s scenario A.  Scenario B is that CL breaks out through the purple TL and completely offsets USDJPY’s plunge, keeping SPX’s rising purple channel intact.  But, I’m not sure that moves the BOJ’s needle, so I’m not as keen on this scenario.

The treasury market seems to favor scenario A — particularly if TNX continues to our 20.46ish target.

Stay tuned.