We left off Friday [see: A New Analog] discussing the role USDJPY played during the severe 2011 correction, and the way it subsequently provided an assist whenever necessary during SPX’s recovery.
USDJPY’s first break above the SMA100/200 on October 22 was almost enough to keep SPX’s trend (red, below) from Oct 2011 alive. Two weeks later, when USDJPY dipped back below the SMA200, SPX broke down further — falling below the purple TL of support.
If left to its own devices, the S&P500 would surely test the gray channel .236 or even bottom — which meant posting a loss for the year. It was the last thing Wall Street needed.
The second push above the SMA200 on Nov 14 did the trick. Having reached a .618 retracement, SPX popped back through all its broken moving averages and scampered back up to the gray channel midline — which it then backtested before falling off in the final week of the year.
At this point, it looked likely to head down after the first of the year and complete a Gartley or Bat Pattern at 1311 or 1290. After all, it never tested the channel bottom or even .236 line following that bearish plunge in October/November.
And, it probably would have if USDJPY hadn’t gone on a tear over the low-volume holidays — gapping higher on Dec 26 after topping both the Mar 2012 and then the Apr 2011 highs, and gaining 4.2% in only a week.
SPX, in turn, shot up 64 points (4.6%) in two days (Dec 31 and Jan 2.) USDJPY kept the pressure on until the gray channel midline and then the 1474 high from Sep 14 were broken.
To anyone with any charting experience, that Nov 16 low looked as phony as a three-dollar bill, as did ramping SPX up through major resistance on the lowest volume days of the year.
But, it left an interesting opportunity for the bulls.
continued for members…
Sorry, this content is for members only.
Already a member? Login below…