Trading has been rewarding but challenging over the past few months.  Take yesterday, for example.  SPX tagged our targets pretty much as laid out in the morning:

Look for SPX to backtest at least the SMA10 at 1899.34.  If that breaks, then the red channel midline at 1896 and the red neckline at 1880 are the next major levels of support.

SPX fell through 1899 pretty quickly after the open, then dipped to 1895 for the midline tag.  So far, so good.  A small rebound to flesh out the falling purple channel, and it would have nailed our 1880 target around 2pm.  The only hitch — need I even say it? — CL and USDJPY decided to break out above established channel lines at about 12:30.   SPX bounced 14 points, trashing the nice little falling purple channel. It worked out fine for us.  We got to participate in the bounce, and made more on our final short as it began at a higher price and dropped further.  Instead of making 20 points on the drop from 1900 to 1880, we were able to rack up 44 points (+2.3% vs SPX -1.52%.)

But, there were several head fakes along the way as multiple intraday declines suddenly reversed for no obvious reason other than a sudden spurt higher by USDJPY or CL.

I liken trading in this environment to driving an automobile by staring solely at the dashboard.  Stoplight up ahead?  Hairpin turn?  Remain focused on the speedometer, the tachometer and the temperature gauge.

The tools that were once interesting indicators of how the market was doing and where it might go are now being utilized to determine its trajectory.  It worked beautifully for the bulls while CL and USDJPY were on the rise.  Lately, not so much.

continued for members…The daily USDJPY shows the bounce back above the red channel bottom has put a floor under stocks prices for now. With the critical .618 at 120.11 within shouting distance, expect SPX to pick up its pace — as long as CL doesn’t spoil things.SPX completed its backtest of the IH&S neckline yesterday, and futures are indicating a 10-pt gain – which should bet it back to the red channel midline at 1886.  From there, it will be a test of CL and USDJPY’s willingness to break higher.UPDATE:  9:41 AM

SPX pushed through the red midline and is currently backtesting it on USDJPY and CL stalling.  ES pushed through the SMA10 and back into the rising white channel, but has also fallen back.  The bulls need another boost.  Consumer confidence is coming up at 10:00.Note that USDJPY seems stuck at the falling white channel .786 line……and, CL seems intent on backtesting the red midline.

UPDATE:  9:47 AM

I’d dump the long position here at 1886.68  — the red midline — as ES continues to show weakness and we see no help from USDJPY or CL.UPDATE:  9:51 AM

SPX found support at the SMA5 10, but USDJPY and CL remain stuck.  So, a bounce isn’t all that obvious.  Watch USDJPY at 10:00, as it often spikes higher on economic news of any kind.  I’d get long SPX again on any move through 1885, with the next target still being the SMA10 at 1895.ES is clinging to the rising red channel and SMA5 50 support — which should provide a bounce unless consumer confidence disappoints.  Again, watch USDJPY. UPDATE:  10:00 AM

Going long here at 1885.01 on a positive reaction to the beat.  USDJPY is testing the broken white channel, while CL is running into the rising white channel midline and ES will test the SMA10 again.  Again, looking for 1894.84 on SPX. UPDATE:  10:11 AM

Taking profits on the long position here at 1895.99.  Back to cash.  Having expended so much energy retaking the SMA10, it might not drop a lot.  It’s more likely to track sideways until the SMA5 10 crosses the daily SMA10 at 1894.84 or SMA5 200 at 1893, at which point the algos will kick in and keep it melting up.  But, USDJPY continues to look like a drag on further gains. With USDJPY faltering, it’ll fall on CL to provide the additional upside. UPDATE:  11:22 AM

I’m expecting to go long when SPX dips down to the daily SMA10 at 1894.94 or, more likely, the SMA5 200 at 1894.11.  If it can hold off a little, the intersection of the SMA5 200 and SMA 10 daily would be a nice spot for a rebound.USDJPY will likely bounce up and conduct another backtest and CL will ultimately break through the white channel midline. UPDATE:  11:39 AM

Back to long here at 1894.56.  The initial target is the .786 Fib at 1901.81.  If it breaks that, then it will have broken through the rising white channel .786 line. UPDATE:  12:16 PM

Closing the long position here at 1904.94.  Back to cash for now.The rest of the gang, all running into resistance… UPDATE:  12:56 PM

From here on, it’s a little tricky.  If SPX reverses at 1900.94-1902.44, then it could confirm the rising white channel and get a nice boost.  Paradoxically, if it drops a little further and tags the white midline where it intersects with the purple channel .236 line (about 1899.60) then it helps confirm the rising purple channel.As is obvious, which channel it’s following would make a big difference in how far and how fast SPX bounces.Much of it will depend on what the Fed and BoJ have to say.  Economic data could easily be a catalyst. The key, though, will likely be USDJPY — which has a shot at 120.11 by late tomorrow.  Getting close to the channel decision… UPDATE:  2:07 PM

I’ll try a long position here at 1899.56 — the white channel midline.  I’d keep stops pretty tight, as it could easily be targeting the SMA5 100 or 200 at 1895.92 or 1897.39.ES looks like it has support here at the .786 Fib, and USDJPY has channel support. UPDATE:  2:26 PM

Hanging in there, despite USDJPY weakness.  Yet, it hasn’t gone anywhere.  I’d close the position here and wait to see whether the channel midline holds.  Might take another shot at it if it dips down to the SMA5 200.  Another possibility: it dips down to 1894.94 at the close to test the bottom of the purple channel without losing trend and the SMA10.

Here’s the issue with a rebound at the SMA5 200 — ES, CL and USDJPY all losing trend.  But, with all that support for SPX — the SMA5 200 & 100 and the SMA daily 10, I can’t get too excited about shorting here. Of course, if SPX intends to go with the rising white channel, I’d feel pretty foolish for not shorting here.  But, we’ve had a nice 1%+ day, and I don’t see any reason to jeopardize it.

I have a conference call coming up in a few and will likely be offline through the close.  I’ll check back in afterwards.

EOD: Pretty uneventful close, except for the usual crushing of the VIX.  It’s the AAPL results and CL inventory report that’ll weight on stocks tomorrow.  SPX is still undecided between purple and white channels.