While most pundits seem to be blaming Trump’s suspicious firing of FBI Director Comey for yesterday’s market slippage, the more important factor was USDJPY’s reversal late in the session.  It was USDJPY’s breakout that, along with VIX’s continued hammering, encouraged the latest all-time highs.  So, the fact that it ran out of steam at an unusual spot caught some by surprise.  It would have been surprising to me, too — except for the fact that the USD has run into formidable technical and fundamental resistance.

continued for members…

USDJPY’s breakout as detailed yesterday:EURUSD is nearing major support at 108.35 that could see it bounce to 1.1189 – 1.1241.The DXY is backtesting a TL that dates back to May 2014. Coupled with SPX’s breakdown late in the session, this has left futures at a slight loss overnight.  Recall that ES’s rising white channel broke down slightly yesterday.

If it picks up any momentum, SPX has the potential to tag the SMA10 at 2391.32 and flesh out a Bat Pattern at the .886 down at 2383.03 in the next couple of days.  A tag on Friday morning would allow a backtest of the broken yellow channel top.  Of course, this presupposes that the backtest will hold.  Odds are that it will unless VIX can plumb new lows… …or CL can push even higher following this morning’s EIA inventory report.Fed speakers today include Rosengren at 12:00 EDT and Kashkari at 1:20 EDT.  So, we’ll get a chance to hear their thoughts on rate hikes.  But, with oil down in the dumps, inflation figures due out later this week (PPI on Thursday, CPI on Friday) are unlikely to bolster the odds.

UPDATE:  10:12 AM

Coming up on the EIA report, CL is sitting at resistance.  If it pops through the red TL, it has the potential to break out of the falling white channel.  In the meantime, VIX is keeping SPX aloft and also in a position to pop higher.  A negative report, of course, would allow SPX to reach the SMA10 and, potentially, lower.

My best guess at this point is a quick drop to 2391.32, facilitated by VIX backtesting the white channel, followed by a bounce led by VIX dropping further and/or a rise in CL.   Obviously there’s nothing beyond the usual Fibs to catch SPX should it fall below the SMA10. But, we’ll know shortly.

Remember, ES’s SMA10 is at 2388.53, which is the equivalent of SPX 2391.75.

UPDATE:  10:33 AM

Getting the backtest for VIX.  But, SPX is being buoyed by CL’s initial knee-jerk higher.  Ideally, SPX will tag the SMA10 around 11am.  So, I’ll be looking for CL to back off this initial spurt.

UPDATE:  12:23 PM

A great deal of effort has gone into getting SPX to the top of the red channel.  CL has climbed on top of and is defending the SMA10 (for now.)  VIX has remained below the broken white channel and continues to threaten a breakdown.

As such, SPX is lingering at the channel top and has, so far, been constrained by the SMA5 200.  Note that a sudden breakdown by VIX could cause a breakout, particularly since the SMA5 10 and 20 are just below.

The bearish case is that, by delaying the SMA10 tag, SPX has enabled a .618 tag at 2389.33 without breaking down through the red channel bottom (around 2:25PM.)

UPDATE:  12:55 PM

VIX is undecided, but CL is trying to work SPX higher.  USDJPY is slightly aligned with the bears, but it’s not too late for a breakout.  Either way, it’s time for SPX to either break out or break down. UPDATE:  1:00 PM

While it could definitely be a head fake, SPX is breaking out at the moment.  I’d go to cash here and switch to short if it drops back into the falling red channel.  I’d only go long again if it rejoins the rising white channel — currently at 2400.30ish.Note that SPX’s backtest of the broken white channel would correspond closely with a tag of ES’ falling white channel top.UPDATE:  1:12 PM

At this point, SPX is dropping back through the red channel top — suggesting the earlier spurt was a head fake.  I’d play along, and put the short position back on with any sustained drop through the SMA5 200 at 2398.03.UPDATE:  1:24 PM

Backing off?  VIX sure suggests it is, even if CL suggests otherwise. UPDATE:  2:03 PM

Looks like a backtest and rejection of the purple channel. Furthermore, VIX is back above the white channel bottom.  I’d try shorting here with tight stops.UPDATE:  2:46 PM

More of the same, with VIX’s shot across the bow serving to push SPX up above the red TL.  Back to cash until we get some follow through. UPDATE:  3:29 PM

Another head fake?  Trying another short position here, though I suspect it’ll go nowhere — especially with the close coming up.  The key is to get back below the red channel top around 2396.70.UPDATE: 3:43 PM

Never mind.  Back to cash, unless we get a nice plunge in the last few minutes.  I would only hold short overnight if you can hedge or deal with the gap risk.  Although VIX is rising, these timely dips back below support are obviously intentional and designed to break SPX out of any overhead resistance.  It’s very difficult to know whether this has been a delay or an attempt to prevent a decline all together.