Channeling a Rally

The Nikkei 225 (NKD) makes a great statement about the silliness of the past seven weeks.  Like US equity futures, it fell apart on election night, only to be resurrected by algos tied to the prices of oil, which rallied 27% off its lows, and USDJPY, which rallied 17%.  2016-12-29-usdjpy-60-0605

NKD’s subsequent price action was, to put it mildly, absurd.  It was as though the dip never occurred, and was thus irrelevant to the ridiculously steep, rising channel [in what universe is the election of a protectionist president bullish for one of America’s biggest trading partners?]2016-12-29-nkd-60-0559

When USDJPY reached our upside target two weeks ago, we waited for the other shoe to drop.  Surely, it would retrace some of its gains, if only to flesh out the channel.

When the red channel finally broke down a few days ago, though, it continued sideways — until yesterday, when it finally dipped just enough to tag the bottom of an expanded channel that captures most of the Nov 8 dip.2016-12-29-nkd-60-0600

The net result: an unbroken rising channel where the “drop” to the channel bottom didn’t produce any lower lows.  Mission accomplished.  And, just in time, as the end of the year is right around the corner.

People often ask me if charts still work in an era where “markets” are so easily controlled by central bankers and algos.  Once you discount the extent to which prices are determined by fundamentals, it opens up a lot of opportunities in forecasting.

No, it’s not like it was 3-5 years ago.  But, in some ways, it’s easier to anticipate what the guys plotting out the “markets” have in mind.  They usually still care about maintaining a veneer of normalcy — a facade of efficient markets.  Often, that’s enough information to guide our forecasts.

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