Charts I’m Watching: Sep 12, 2014

It’s a battle of the channels…

2014-09-12-ES 15 0618

If the red channel holds, we should revisit the yellow neckline.  As always, keep an eye on USDJPY.  It is extremely overbought.

2014-09-12-USDJPY 60 0726

But, the guys writing the script are stuck.  Any move lower will tank stocks.  The market is addicted to an ever cheaper yen.  Withdrawal won’t be pretty.

And, note how prices have returned to close at the 1.272 Fib every day since first broaching it.  Clearly TPTB realize it’s out of control.

2014-09-12-USDJPY 15 0726

The BOJ is royally screwed.  Japan, which is already monetizing its own debt courtesy of the BOJ (most recently, at negative interest rates) would collapse under higher interest rates.  Rates must stay low, which will continue to put pressure on the yen — especially relative to the USD as the Fed tightens.  But, consumers, stretched to the limit with yet another tax hike on the way, simply can’t handle the higher food and energy costs which would accompany a cheaper yen.

Frankly, I don’t see a way out — which usually means they’ll do something even more irresponsible — like ballooning the BOJ’s balance sheet even more in order to keep the house of cards standing just a little longer and keeping USDJPY in a holding pattern as long as possible.

What will happen to the yen carry trade?  I can’t say.  With EURUSD’s continuing collapse, perhaps the hedgies will shift gears. But, as we noted a couple of days, ago, the dollar itself could be ready for a correction.  It should be an interesting next few weeks.

UPDATE:  12:15 PM

Looks like SkyNet has taken over at this point, with USDJPY and VIX taking turns pushing stocks around.  Things could get interesting if that rising wedge in USDJPY were to break down.  But, it’s more likely to happen after-hours.

2014-09-12-VIX 5 0910

Volume has gone bye-bye; so I think I’ll sit the rest of this one out.  Chances are we’ll get a big move over the weekend, but it’s anyone’s guess which direction as we’ve discussed in the past few days of big picture charts.

UPDATE:  1:45 PM

Spoke too soon!  USDJPY played along…

2014-09-12-USDJPY 1 1100

…and, helped ES reach the H&S neckline as we originally discussed this morning.  There’s more downside potential, of course, but it looks like USDJPY is done for now.  While it’s always nice to be right, I hate the fact that the algos were completely responsible for the move.  Will we ever get our market back from the machines?

Have a great weekend, everyone.

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