Well Played, Currency Manipulators…

Our initial downside target yesterday was the SMA200. It looked to be in the bag, as the white channel line intersected the daily SMA200 at exactly the same time as would the 5-min SMA200 (another common intraday target.)

And, since SPX had fallen below the purple channel .786 line, a drop to the midline was potentially in the cards as a secondary target.

2015-10-25 SPX 5 0732USDJPY was cooperating, having reversed below the SMA200.  It was even tracing out a nifty little falling channel.  2015-10-26 USDJPY 5 0905But, as we noted earlier in the session [see: Central Banks Can Relax]:

[USDJPY] is the key chart to watch, as TPTB will want to keep it within striking distance of its SMA200 in case stocks start looking too wonky.  A quick ramp back to the SMA200 should fix things in a hurry.

Apparently a 9-pt dip in SPX was much too wonky for The Powers That Be.  The perfectly good falling white channel in USDJPY was interrupted (the white arrow, a very unnatural spot) so that USDJPY could head back to the SMA200.  2015-10-27-USDJPY 5 0910The impact on SPX was almost immediate.  It popped through its clearly defined channel and spent the rest of the day oscillating higher — never once dipping below the green, dashed TL in the chart below.

2015-10-27-SPX 5 0817

updated Oct 27, 11:30 AM

There would be no SMA200 tag during the cash session.  The only way US traders could play the backtest would be to:

(1) stay short overnight, and run the risk of waking up to a big loss
(2) stay up all night and watch it like a hawk
(3) stay short, but hedge your position (or use stops, if playing futures)

I’ve tried all three approaches many times.  And, trust me, none of them are particularly effective or enjoyable.

I’ve been hit with many 3AM ramp jobs that nullified good patterns and left me with a loss.  I’ve pulled all-nighters, only to see the eminis easily propped up in the low-volume environment.  And, I’ve seen way too many stop-running exercises that prey on cautious investors.

The “market” has always been manipulated.  But, in the old days, it was just as likely to result in a dip as it was a spike higher.  Not any more.  These days, the regulators are quick to prosecute HFT’s and algos that results in market corrections.  But, if you manipulate it higher, you have nothing to fear.

After all, the biggest manipulators of all are the central banks themselves, with both direct and indirect intervention whenever things are getting out of control — or, they simply want to push indices past overhead resistance.

That’s what last week was all about: SPX topping its SMA100 and SMA200.  It was driven entirely by USDJPY’s manipulation higher.  If this comes as news to you, please take 10 minutes to read the recent post:

What Really Drives Stock Prices?

Whatever pattern seems to be unfolding, whatever target appears obvious, they’re easily avoidable by the simplest of means: pushing the easily-manipulated USDJPY a little higher.

We don’t have to look far for more proof.  As soon as cash markets closed yesterday (the red arrow) USDJPY continued to our downside targets: the bottom of the red channel, and on down to the .618 Fib at 120.11.  2015-10-27-USDJPY 5 0908 The goal was for SPX to tag its SMA200 at the open — when cash traders would be unable to participate.  And, it almost worked out that way.

2015-10-27-SPX 5 0913Traders saw USDJPY bouncing before it even reached 120.11 and were quick to flip back to long positions.  It’s only now, almost 3 hours later, that SPX appears ready to finally reach 2060.

After all this drama and subterfuge, will SPX get a big bounce there?  It’s not as clear cut as one might think.

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