This morning we’ll take a look at the analog first offered on Aug 3 and updated in the Big Picture on Aug 19.

continued for members…

Here’s where we left off on Aug 19.  The overall theme was a continuation of the purple channel through the Fed decision to raise rates, followed by a recovery into the election.

So far, the purple channel has held pretty well.  The biggest questions remain: (1)  whether the Fed will or won’t raise rates, and (2) whether or not we’ll get a 2138 backtest before then (the white dot.)

If I overlay the Aug 19 chart on the price action since, we can see the analog has done a reasonably good job of predicting direction, even though the timing was off.  The channel itself was also slightly too bullish.

The double drop to the purple channel bottom this past week increases the odds of the white dot coming into play around Sep 12 — next Monday.  The reasons for this are two fold.  First, it’ll strengthen the bull case if 2138 is backtested.  Second, a backtest from here would only be 44 points — about 2%.  If they allow it from higher up on the purple channel, say, 2200, it’s closer to 3%.

To be sure, there have been plenty of head fakes along the way — with the latest being the huge CL rally over the past several sessions that is now being unwound.  If it’s allowed to unwind during the session, then we could certainly get enough momentum for the purple channel to fail.

From the looks of it, ES intends to break out of the falling red channel, so I’d have to say a long position makes the most sense initially.

However, CL and USDJPY’s bearish positioning don’t inspire much confidence.  Note that USDJPY not only tagged our upside target, but also the falling red channel top.  It’s an excellent short here.  I’d keep the trailing stops relatively tight.

UPDATE:  9:36 AM

SPX just backtested the rising purple channel midline again.  With USDJPY and CL both dropping, it’s going to be hard to maintain any momentum.   I’d revert to short here and take a chance that they’ll both fail, taking SPX down with them.

Note, however, that CL — which remained below its SMA5 10 all the way down from 45 to 43.83, has suddenly decided it has reason to rally.  This, of course, is the intraday meddling by the algos driven by CL, and it could quickly undo the bearish potential simply by bouncing — which it’s hinting at right now.

VIX came reasonably close to our downside target Friday, and is getting a nice bounce off the white TL this morning.

UPDATE:  10:08 AM

Pretty lousy ISM reading (51.4 vs 55 exp) just now, which further dinged the odds of a September rate hike, which further dinged the DX and, thus, the USDJPY.  CL is rallying to try to compensate, which will probably save SPX’s rising white channel. The SMA10 (2176.48) is coming up.

Keep an eye on CL as SPX approaches 2176.  Note that ES has also reached key support at the yellow TL.

UPDATE:  10:30 AM

CL is getting a big bounce here.  I’d revert to cash here at the SMA10, but look for another opportunity to short either on the drop back through or a backtest of the rising white channel when the SMA5 10 catches down, probably around 2178.  The problem with these CL bounces is that you never know whether it’s just trying to slow down or, rather, to reverse SPX’s descent.  

UPDATE:  10:45 AM

Looks like this is all were going to get.  I’d revert to short here as CL just ran into its falling red channel midline and should reverse — dropping along with USDJPY.

Note that DX is dropping through some pretty important support.  Will we get 93.108 after all?

UPDATE:  11:07 AM

The most important chart I’m watching at the moment…

And, note that after topping its SMA200, NKD has backed off.  If it can’t climb back on top, this is obviously bearish.  Though, it just means more debt being issued (bought by the BoJ at a guaranteed loss) in order to purchase more equities.

UPDATE:  11:16 AM

After breaking down, CL is still rising.  And, VIX is getting hammered.  I’d step aside here and revert to cash.  It’s still a backtest, so the presumption is that it’ll fail and start falling again.  Swing traders should be safe holding short.  But, as discussed above, it’s hard to know for sure — especially when VIX gets into the act.  With the euro close coming up in a few, we should find out shortly.

UPDATE:  11:59 AM

VIX just got hammered, leading SPX to pop up above its SMA20.  It’s now testing the purple midline.  If it pops through, there’s not much overhead resistance.  Ready to play the breakout or the breakdown, either one.

UPDATE:  12:09 PM

Looks like a reversal in the works, but CL hasn’t really broken down very decisively.  And ES is 1.50 away from breaking out.  I’d try shorting here with tight stops.  But, note the approaching SMA5 10, which will potentially provide support.

UPDATE:  12:30 PM

VIX is getting hammered again.  Even though CL is having trouble hanging on, and USDJPY is going to drop further, VIX is calling the shots.  Back to cash.

UPDATE:  12:49 PM

USDJPY and CL are both still looking weak.  But, VIX continues to push lower.  So, SPX has broken out — albeit in a most unconvincing manner.  I’ll (very) reluctantly play along with tight stops.

UPDATE:  1:09 PM

Just noticed that USDJPY has potential channel support here.  Worth watching it closely, especially as it becomes increasingly obvious that CL is out of juice, VIX might have found its feet, and SPX is testing its rising SMA 5 20.  I’d short on any sustained drop through the SMA5 20, currently at 2182.88.

UPDATE:  1:29 PM

SPX just dropped through its SMA5 20, so we’re short again.  Of course, CL decided to pop above its red midline and SMA5 100.  Will it be enough?  The top of the falling white channel is just above at 44.72ish, with the SMA5 200 at 44.88.  I have to step out for a few, but I’d stay short with tight stops.  The SMA5 10 should work.

UPDATE:  1:49 PM

I’m back, and see that SPX popped back up through the SMA5 10 on CL strength. Looks like they’re just stretching this out.  I’m wondering whether today’s target should be the SMA5 200 at or near the close — perhaps 2176.  It would be about a 6-pt drop from current prices.  Note that a drop to 2138 by Sep 12 would entail about 6-pts per day on average.

UPDATE:  2:37 PM

Every little tick lower, VIX or CL is there to pick SPX up.  But, there’s no follow through, no break out despite several opportunities.  I’ll move to the sidelines again.  Though I still feel good about 2176 by the close, I get very nervous when SPX is sitting right at a breakout point, with CL and VIX also in a place where they can easily make it happen.  By the same token, I’m not comfortable going long, as today’s five previous “breakouts” beyond the SMA5 10 went absolutely nowhere.

UPDATE:  3:12 PM

One last try on the short side.  If it fails, it’ll probably be at the SMA5 50 around 2182.50.

UPDATE:  3:54 PM

Well, here we are again.  A market that should be down on lousy economic news is making new highs.  Believe it and go long into the close, or bet against it and take a chance on a big gap higher?

I still like 2176 in the morning, with 2165 close behind.  But, I can’t recommend it unless you can hedge or watch it closely.  If not, then it’s time to step aside on VIX’s latest leg down.   There’s a decent chance that the analog holds another couple of days and SPX ends up at 2200 first. Though, I must admit I’d be a lot more excited about shorting CL and/or USDJPY at these prices.

I’ve been watching GC all day.  It’s having a great day and is threatening to break out of its little white corrective channel.  As long as it remains above 1350, it has a good chance at 1380.  If it falls back below as DXY bounces, then we’re looking at another test of the 1307, this time with the SMA100 along for the ride.GLTA.