The good news for bulls is that ES/SPX broke through the latest straw man trend lines yesterday and have (more or less) backtested them.  The bad news is that the Dow remains stuck below double overhead resistance and several Dow components feature charts that are anything but bullish.continued for members…

If our current analog is correct, SPX will peak next Tuesday – if it hasn’t already.  But, what about the Dow, which is one good pop away from a breakout?  One potential answer lies in the currencies.

While USDJPY’s downside is pretty clear……EURUSD has just reached major support.Remember, EURUSD’s attempts to work lower have been interrupted time after time by the presence of a channel top that it has been backtesting since last November.This could leave DXY without much upside potential — an environment which has traditionally not been healthy for stocks.If DXY pulls back from its reengagement with its rising channel (from which it broke down last month) stocks will be under pressure.  While SPX could milk bounces in CL…… and USDJPY and a little further decline in VIX (which remains above its .886, BTW)……then SPX can continue to benefit from a slight meltup even as key Dow components continue to sag under disappointing earnings and outlooks. For now, we’ll stick with our forecast for a cycle high and subsequent breakdown next week. Look for TNX to play an important role with a sharp decline… …and for DB to make a statement one way or the other.  Another Lehman moment, perhaps?

UPDATE:  3:50 PM

Another day of meltup for SPX……and a day of meandering for DJI.  As expected, today’s new all-time highs were brought to you by VIX, which made lower lows without testing 11.03.Interestingly, CL tagged the SMA200 two days ahead of schedule and backed off rather quickly.  It will need to break down through the red TL in order to tag our 54.55 target.  So, don’t be shocked if it takes its time.Likewise for RB, which tagged and retreated from the top of the purple channel.