With investors anxious over the meltdown of some of the biggest and systemically riskiest banks in the world, the “markets” needed some distractions.  First, Deutsche Bank rescue rumors started circulating, offering a little hope re our 2178 upside target.

DB is up 7.7% off its lows, and 4.7% since our bottom call, so everything must be okay.  If CL and USDJPY cooperate by breaking out of their triangles, it will be.

But, stocks were still slipping.  Perhaps investors questioned the DB deal, since Merkel had sworn, the day before, that Germany wouldn’t rescue it.  About that time, the EIA crude inventory report was released.

After an initial spike, oil broke down through the bottom of its triangle.  I considered pulling the plug on our SPX upside target, but settled for revising it down to 2171.

Then, quite by coincidence (not), the WSJ flashed a headline that the oil ministers meeting in Nigeria had a deal.

“OPEC reached an understanding that a production cut is needed to lift petroleum prices…but, the Cartel will wait until November to finalize a plan to tackle a supply glut that has lasted longer than expected.”

Any formal agreement?  No.  Firm production limits?  No.  Timeline?  No.  The deal is about as solid as a New Year’s resolution to spend more time at the gym or cut back on drinking.

But, the algos love this kind of stuff.  CL popped almost 7% off its lows, and SPX went up and tagged 2171 seven minutes before the close.  All’s well that ends well.  Or is it?

continued for members…

SPX is just about back to overhead channel resistance.  NKD looks like it’s in real trouble: the .618 and a 3-week old TL.

And USDJPY reached SMA20 and IH&S resistance.

Fortunately for bulls, it has more headroom.

And, VIX has a little further to drop.And, CL, while it should pull back a little, will probably shrug off the shortage of deal details.

SPX has another opportunity to break out of the falling white channel.  While we could well get some consolidation down to 2168, 2165.28 (my favored target) or even 2160, the bogey remains 2177-2178 and, ultimately, a breakout.

I have to be out of the office this morning, but will return as soon as possible.  Start out short, but watch for that reversal — which will likely be signaled by CL, USDJPY and, of course, DB.  

GLTA.

UPDATE:  11:13 AM

2165.28, and still falling.

UPDATE:  12:44 PM

Getting close…

UPDATE:  12:48 PM

I’d cover here at 2152.81.  It’s marginally higher than yesterday’s low, near the .618 of a larger pattern, near the SMA10, and DB just reached Tuesday’s lows — which should hold.  If DB breaks below 11.40 or so, all bets are off.  More charts in a minute.

USDJPY and DB are still slipping, so there might be more ahead.  SPX’s rising white channel bottom is around 2148.

UPDATE:  1:09 PM

Had a chance to step back and look at things, and ES really looks like it’s heading to 2130.  This would translate into 2138 for SPX — the 1.618 extension we’ve watched so closely.  This bounce will likely run out of steam where the SMA5 10 catches down — probably around 2156.50ish.  If it can’t overtake the falling SMA5 10, I’d look to short again for 2138 — especially if DB is back below 11.45.

This is not a gimme, and is complicated by the fact the we have lots of potential support between here and there: e.g. the white .786 and .886 at 2148.20 and 2145.09.  There’s absolutely nothing wrong with sitting on the sidelines with our already hefty gains on the day.

UPDATE:  1:25 PM

The SMA5 10 has caught down with SPX.  Back to short at 2154.98 with tight stops.  If I’m wrong, then it’ll shoot up through 2155 to 2160.20- the white channel bottom and SMA5 200 and SMA5 20.

UPDATE:  1:34 PM

SPX is slipping back above the SMA5 10.  I’d revert to cash here and only short again if it drops back through.  DB right at 11.45.

UPDATE:  1:40 PM

Not getting scooped up.  Back to short, but 50:50 it’s a head fake.  The SMA5 20 is approaching the SMA20, and SPX might like to pop up there and tag it at 2158.  DB is still sitting right at 11.46, even though USDJPY and NKD continue to slip.

SPX can still tag the white .786 or .886, call it 5 waves down and a bounce on the purple TL.  Seen that a lot over the past couple of years – negligible 5th waves that barely drop below the 3rd.

UPDATE:  1:57 PM

Probably close enough.  I’d take profits here at 2145.61.  There is more downside potential, but I think DB is done falling for now — or at least intends to backtest 11.45.

Note that in addition to the .886 at 2145.09, there’s a red .618 at 2142.37 — also roughly the falling white channel midline — which would be slightly higher than Tuesday’s lows.  But, it really rests on DB’s shoulders.

VIX reversed at double channel midlines, though it’s hard not to wonder about the SMA200.

Another SMA5 10 coming up at 2150ish…

UPDATE:  2:18 PM

DB just popped back above 11.45, which allowed SPX and ES to reach their SMA5 20s.  VIX dropped through SMA100.  All this should be enough to let bounce continue, but it’s struggling.  I’d hold long unless it drops back through the SMA5 20.  Note that the SMA10 is just above.

Because VIX always sells off in the middle of a looming financial crisis…  Wondering whether it’ll stop falling when it backtests the falling white channel.

UPDATE:  2:26 PM

Back to cash at 2155.38.  Might re-enter later but good for now.  This bounce has been all about DB being back above 11.45 (it’s at 11.48) and VIX dropping (just reached white channel backtest.)  So, I’m not sure how much more it has in it.  And, as we approach the close, might fear of holding overnight overpower the algo nonsense?  

UPDATE:  2:36 PM

Back to long as VIX channel giving in.  It’ll probably only go to the SMA5 200, but on the off chance that it backtests the white channel at 1165…  As before, it’s up to DB and VIX.  tight stops recommended.  Don’t really like this trade, but we’re seen this happen a million times, where things get out of control on the upside into the close.

UPDATE:  2:44 PM

Back to cash, as VIX is bouncing.

UPDATE:  2:59 PM

Back to short at 2156.58 as the DB bounce is petering out, but VIX is bouncing just fine.  Again, SPX could find support at the rising SMA5 20, but there could be a lot of selling pressure into the close.  Hearing that DB is facing a cash squeeze.

UPDATE:  3:33 PM

VIX just got clobbered.  I’d go back to cash here for the night, as it seems SPX intends to remain above the SMA10.  I’ll give it some thought if it reverses back below it.

Coming up on the close…how do you play this?  You don’t.  While there’s certainly plenty of downside risk, there’s a very good chance that TPTB step in and announce a way to save DB.  It’s worse than a Fed decision from the standpoint of being binary, and the tail risk is huge.  I think the bounce from 2145 is ample evidence that TPTB still have plenty of firepower.  But, that could all go away in an instant if there’s a real bank run.

UPDATE:  3:42 PM

Just a quick scalp, along for the ride if it drops through 2155.

UPDATE:  3:53 PM

Back to short at 2154.36 for whatever we can get before the close.  Again, I wouldn’t hold overnight unless you’re able to hedge or handle the risk of a gap higher on overnight news.  Stops are recommended.

UPDATE:   4:00 PM

Out at 2151.12.