This is The Powers That Be’s favorite time of the year — and, I’m not talking about the Christmas spirit.  The extra low volume ensures they are able to do pretty much whatever they want — including, of course, breaking chart patterns.

So, when we see a channel break down with bearish implications, we can’t just assume the “market” is heading south.  Such was the case yesterday with SPX.  It started the day by nailing our initial upside target — the backtest of the broken white channel — and then reversing to exactly where we expected.  From yesterday’s post The Big Picture:

Pre-open:  Futures are up 18; so, I’d be long on the open with a hard look at exiting around 2022-28.  9:33: That’s the first target down.  I’d close the long here at 2022.74 and short with tight stops (the SMA100 is just above at 2028.08.)  The initial objective is 2015-16. 9:58: That’s probably good enough for the short trade.  I’d take profits here at 2015.48…

It was good enough for 12.31 points (.61%) so I was happy to go to cash for the day — which, in hindsight, was a good idea.

Because, at that point, the rule book got tossed out the window and some very weird stuff happened — complete with the obligatory melt-up into the close.

continued for members…

With the futures showing a 7 point gain, we should get the SMA100 backtest  — our second upside target from yesterday.  At that point, I’d say let’s wait and see.  If they’re able to sell the idea of the red channel as seen below, then there’s plenty of upside beyond 2027.21.IMO, it doesn’t look as solid as the white channel we’d been following — which clearly broke down last Friday.But, again, it’s the holidays.  And, what’s a busted channel in the scheme of things?  The keys today should be USDJPY — which is currently well below the white channel bottom……and, CL, which might  take a run at 34.17 as soon as today.  In any case, it has a decision to make regarding the white TL as well as the red channel midline. Put those two together, and it’s less than certain that SPX’s SMA100 will hold after the initial tag.

UPDATE:  9:36 AM

SPX slightly exceeded the SMA100 in the opening minutes, but is slipping back below.  I’d take a short position with tight stops here.UPDATE:  9:44 AM

The 5-min SMA200 is holding so far, thanks primarily to CL’s sudden spike back above the red channel middle.  I won’t be surprised if this decline is limited to tagging the 5-min SMA10 in order to close this morning’s gap at 2021.36. UPDATE:  9:55 AM

Almost got to 2021.36 on the first thrust (2021.58.)  We should get another, fueled by a dip to USDJPY’s red TL (or below, if neccessary.) UPDATE:  10:12 AM

USDJPY just plunged below the red TL…   but SPX is not terribly interested just yet……because CL is still suggesting a breakout.  A backtest of the red midline would help.With SPX’s SMA20 (white) coming along, we could get a slightly lower dip to it at 2018.50ish.

UPDATE:  10:18 AM

SPX just tagged 2020.57, which is good enough for me.  I’d close the short here and revert to a long position. CL is breaking out, which should safeguard it.  But, we’d be in the clear with USDJPY back above the red TL rather than still thinking about the .886 at 120.70.

UPDATE:  10:25 AM

I’d go to cash here at the white channel bottom.  Would want to see a breakout before committing to a long.

CL staged an impressive breakout……but USDJPY is still in the cellar and focused on 120.70.UPDATE:  10:50 AM

I know, SPX broke above the SMA100.  But, ES didn’t.  And, USDJPY is still hinting at 120.70.  And, even CL is heading down to backtest the white TL.  So, while there might be a breakout, I don’t think it’s imminent.  I see further bouncing around  — at least until USDJPY is done doing what it’s going to do.

I can easily see SPX backtesting the small, falling white channel at the 5-min SMA100 (yellow) when it reaches it — about 2024.20ish.  It’s not enough for a trade.

If it drops through it and is headed for the SMA200, that would be interesting.  But, I think USDJPY would bounce before things got any worse.   Just a reminder…I’m knocking off at 12PM EST today through Thursday, and again next Monday-Thursday.  So, I’ll be focusing on a few trades, typically in the first two hours of the session, targeting a total of 10-20 points (1/2 – 1%) or so.

In fact, given the way the “markets” are moving lately, the first few trades of the day are about the only ones that make much sense (except for big meltups and meltdowns.)  Something I’m thinking about…

UPDATE:  11:05 AM

Another one of those weird moves…  Within 0.014 of the .886 Fib, USDJPY suddenly spiked up to 120.99 and briefly topped the 5-min SMA100.  It gave CL a chance to finish backtesting the white TL without bringing SPX down.  If it backtracks, then SPX could slam back down to the SMA200.  But, on face value at least, it looks like they’re preparing for a USDJPY-led breakout. Quick update on VIX in regards to the question below…  The SMA200 should serve as a target and support.  But, there’s now a big gap up to 18.84.  This chart is a mess right now, and I’d not focus on it too much other than to get a clearer view of the manipulation in the final minutes of the session.UPDATE:  11:55 AM

SPX punched through the SMA100 again, and is backtesting this time.  Note that it’s also backtesting the white channel bottom.  USDJPY is still in a position to help if it’ll bounce off that red TL — and, not reverse back down to the .886. And, CL is still ratcheting higher — but, coming up on the TL connecting the former highs.  In sum, while everything is looking rosy, it’s not quite enough for me to recommend a long position for the remainder of the day.  I’d get more excited if SPX popped through the .618 and IH&S neckline at 2032.45, and ES were back above its SMA100, but not just yet.

UPDATE:  12:37 PM

Here’s the do or die point for this rally — the neckline of an IH&S.  USDJPY will probably need to break out in order for it to work.  Otherwise, it’s a great place to try shorting. GLTA.