Today was supposed to be a quiet day, what with the blizzard and impending FOMC decision.  Instead, we’re getting just a taste of the sort of unraveling that TPTB are deathly afraid of.

PPI came in hot, as we’ve been expecting, and oil is well on its way to our next downside target.

continued for members…

USDJPY made an aggressive backtest of the broken purple channel, but is falling back at the moment.

While CL is nearing the .500 Fib on its way to the .618.

VIX got a nice bounce on support yesterday, and is poised to break out…again.

All of this leaves SPX with a likely target this morning of the red .618 at 2363.  If/when that fails, we should get the .886 at 2357 and ultimately, the 1.272 at 2348.47 (though this might easily wait until tomorrow.)

U PDATE:  10:02 AM

SPX is dipping below the .618 and purple channel bottom.  With any luck, it’ll drop on through to the .886.  But, it would be rather unusual to do so without a bounce — at least up to the dropping SMA5 10 at 2365ish.  Cautious traders might wish to cover here and re-short, while swing traders should be fine holding short.

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There has been a divergence of sorts between SPX and ES for the past month.  We’ve discussed SPX breaking out past its yellow channel top and dropping for a backtest.  ES, on the other hand, is already back below its yellow channel top.

This would imply a sizable drop, but as the yellow channel isn’t much of a channel at all, at least reinforces my expectation of a backtest of something more important such as the purple channel top or the white 1.618 at 2338.87.

The ugly, frustrating version of this playing out would be for SPX to dip to where the purple channel crosses 2338.87 in June — a long, drawn out, dispiriting period of chop.  But, I think that’s unlikely.

I think the more likely version is that SPX declines to either its yellow channel top at 2348.47 or the 1.618 at 2335.34, and ES just kind of fumbles along, doing whatever is necessary to accommodate.  The corresponding prices on ES would be an 2347 and 2332 — which is reasonably close to ES’ 1.618 at 2338.

Given that ES can dip further and recover overnight (remember election night), it’s entirely possible that it will get the purple channel backtest tag as well — but after hours.  Any way you look at it, though, I think it bolsters the case for 2335 in SPX.

Of course, tagging SPX means a drop through SPX’s yellow channel top.  So, if it happens, it’ll either be one of those intraday jobs or TPTB will run the risk of the breakout breaking down.

They have worked very hard to run prices up to a level at which a 2.7% drop (from 2400 to 2335) won’t really matter.  But, members should be aware that the bulls aren’t completely out of the woods just yet.  As CL continues to break down, it remains to be seen whether or not the coming USDJPY ramp or VIX hit job will be enough to compensate.

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We’re coming up on our next downside target at 2357.08.  I have to step away for 15 minutes at 11 AM, which is about when it should happen.  As with the .618, we should get a bounce here, perhaps a bigger one that backtests the broken purple channel and the SMA20.  Traders might wish to cover and then re-short.

Stay tuned.

UPDATE:  11:59 AM

For those who played the bounce, SPX is currently at the .500 and showing no interest in bouncing further.  I’d revert to short here.  If I’m early, the SMA5 200 just above at 2368 should serve as overhead resistance.

UPDATE:  3:42 PM

Nothing much new, just a long, slow sideways ramp.  The dip to 2348 could come at the close or tomorrow.  Either way works from a channel/Fib perspective.  But, we should also be on the lookout for a last minute head fake, break out of the channel as occurred at yesterday’s close.  Note that SPX is back on top of the SMA20. 

A reminder not to hold short overnight unless you can hedge or deal with the gap risk.  If you’re not holding, this is your exit opportunity.

The rest of the cast is positioned okay for tomorrow.

Note that SCO, the inverse ETF for oil, came pretty darned close to a channel line of resistance today.  At 41.45, it was up almost 23% since it first appeared on my radar.

EOD…

 

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