Charts I’m Watching: Mar 18, 2015

About an hour before the cash markets opened yesterday, we observed that crude light was closing in on our long-held 42.51 target.  It bounced at 42.63 and was on its way higher when stocks opened trading, prompting us to write:

The bounce has begun, even though CL came up a few cents shy of 42.51. Stops are advised, as a premature bounce sometimes means one last leg down.

We also noted how much of CL’s decline had been conducted in the after-hours, so as not to disturb stocks’ continuing rally.  Guess what?

2015-03-18-CL 5 0600CL did post another leg down.  And, it happened right after the close — passing through 42.51 in the very minute before the futures also closed.  The 60-min chart:

2015-03-18-CL 60 0600We also noted as the market opened that USDJPY had dipped below the gray channel bottom for the first time since Feb 26.  The degree to which is was allowed to reset would depend on how stocks reacted to CL’s decline and subsequent bounce.

A strong response would allow USDJPY to decline during market hours; a weak or lackluster response would require it to wait until tonight or, as we discussed yesterday, a reaction to the Fed’s statement tomorrow.

2015-03-18-USDJPY 60 0600Stocks started to falter, so USDJPY was brought right back into the gray channel — and, the falling red channel was broken — for the remainder of the cash session.  USDJPY was not allowed to decline to the white channel midline until after stocks had closed for the day.

If the above aren’t grounds for suspicion (if not proof) that these are the most heavily manipulated markets in memory, how about VIX’s actions this morning?

A 4-point SPX decline in the opening minutes was enough to prompt the Fed’s traders to push the panic button, sending VIX plunging from yesterday’s 15.96 close to 13.69 in the first three minutes of “trading.”

2015-03-18 VIX 1 0645It broke the perfect little rising red channel, sending a loud and clear message that significant declines would not be tolerated.  Not today, with the Fed release coming up at 2pm.

2015-03-18 VIX 60 0630Oil’s decline has been a godsend for the Fed, which has been struggling to find a way to keep inflation and thus interest rates low in the face of improving headlines.  But, it isn’t without repercussions.

The very banks whose bidding the Fed does on a daily basis are rather exposed to oil’s fortunes.  So, we rather expect that CL has reached a sweet spot and, like USDJPY, EURUSD, VIX, ZN, etc., will be utilized when needed to nudge the “market” in one direction or the other.

For more, see yesterday’s Update on Oil.  And, for how it fits in with the bigger picture including currencies, interest rates and inflation, see Those Wacky Central Bankers.

This being a FOMC announcement and press conference day, we don’t advise trading.  SPX typically follows a pattern of consolidation, putting in a triangle of some sort before a very brief and sharp correction, which is then followed by aggressive USDJPY ramping and VIX monkey-hammering that erases all losses and leaves it higher for the day.

But, as we’ve already seen, there is a great deal of manipulation that occurs on these days.  That doesn’t mean, however, that we won’t offer some thoughts on likely moves.

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