Still on the road, should be back late Wednesday.  Lots of squirrely moves in the markets lately, with yesterday’s ridiculous mid-day spike likely algo’s running amok.  But, these are the key charts to watch.

SPX’s H&S Pattern is still in play — backtest either done or nearly done.  The wave down from 1872 is slightly shorter than the first from 1897…

…but was slightly longer in ES.  Its 4th wave declined to overlap its 1st wave down early this morning.

USDJPY has held the red channel bottom so far, and is making noises about an IH&S.  But, it will continue to be constrained by Japanese equities.

And, the 10-year is still back-testing the broken red channel midline.

Even with all the noise, our targets are still intact.  GLTA.

Yesterday’s 17-pt ramp job got going around 4am NYT — well before the retail sales that will be credited with the results and the pathetic Citigroup earnings that will be ignored.  Bottom line, ES has back-tested the SMA100, and USDJPY is still vacillating on the bottom edge of the rising red channel.

I’m traveling through Wednesday, so won’t be able to post intra-day.  Instead, we’ll take a quick look at the big picture and how I expect things to play out.

continued for members…   (more…)

ES just reached our 100SMA target — also a falling white channel midline and rising white channel .236 line.

As expected, this aligned with the Nikkei reaching its lower neckline.

It has fallen 15% already.  If the H&S plays out, there’s another 18% decline in store.  The silence from the BOJ, which is rather boxed in at the moment, has been deafening [see: Sayonara Abenomics.]

The chart that should make the bulls really nervous is the 10-yr note.

This morning, it broke down below the rising red channel midline which has provided ten distinct bounces over the past few years.   Its failure will confirm our downside case as first laid out in the TNX v SPX scenario in December.

USDJPY still has plenty of downside ammunition left — accomplishing the above moves without needing to dip to the white .886.  The key for bulls is staying above that rising red channel bottom currently around 101.59.

More later.

UPDATE:  2:00 PM

We had nice rising channels working on ES and NKD, but they broke down an hours ago and retraced .886 of this morning’s lows.

USDJPY, on the other hand, has respected its rising channel, and is on track to be back above the red channel bottom by the close.

As long as it futzes around below it, however, ES and NKD will not be inclined to break out to the upside.

As far as the downside, USDJPY might use the downside potential it still has to shake out some of the bulls playing the SMA100 bounce.  Watch out for any dips below the channel, as they could be head fakes like the one in NKD earlier.

Any lasting departure from the channel should be seen as a signal of lower lows for equities.  I would use the falling white wedge in USDJPY as a guide.

As I mentioned to an investor last night, this entire sell-off has felt somewhat “controlled.”  While there’s certainly plenty of potential for big downside (and, I believe it is coming) there just hasn’t been much energy to it yet.

As long as USDJPY hangs around the rising red channel, It’s hard to get too excited about a big crack in the markets.  Having said that, I wouldn’t turn my back on a long position for more than a second.  Because, well-controlled sell-offs can get out of hand in a hurry.

If this one does, all the downside targets still apply from earlier in the week.  There’s minor channel (bottom of the falling white channel) support at the .500 at 1809.  And, there’s major support at the .618 at 1789 (the rising white channel.)

Bottom line, things are still bearish.  SPX completed a H&S Pattern yesterday, and absent a rise back to 1837 by today’s close, that pattern should play out.

But, lots of these patterns have failed in the past few months — wreaking havoc for chart pattern traders.  And, even if it does play out, a backtest of the neckline would be quite normal.  If the SMA100 holds, the odds of a backtest are pretty good.

The best I can come up with is keep an eye on USDJPY.  If they let it droop, stay short.  When it strengthens, be long.  And, especially keep an eye on the red channel bottom.

I’ll wrap up over the weekend, but am signing off for now.  Looks like the .500 Fib is safe, and USDJPY is back to the red channel bottom — but, a close below the SMA100 is definitely bearish (ES 1819 and SPX 1828.)

One last note…I will be traveling Monday – Wednesday and posts will be spotty.  I might even take a day off, depending on how things are going.

GLTA.

As is so often the case lately, markets are teetering.  Much of today’s action will depend on how the unemployment figures look.  They’re due out in an hour (8:30 EDT.)   The MSM’s explanation of yesterday’s rally is total and utter BS.  As we discussed yesterday:

The PPT is alive and well.  Either than or at one nano-second past their release, investors read the 8,200 words in the FOMC minutes and judged them to be bullish for the stock market — ramping ES up 20 points or so to the SMA10 (the 60-min SMA100) in the blink of an eye.

The USDJPY broke down below several important channel bottoms, tagged our next target (101.40-50) and bounced back above — but, for how long?  I see 101.13 and then 100.17 on the horizon.

The Nikkei sustained serious damage overnight thanks to an abundance of negative economic news from Japan and China (Japan’s biggest trading partner.)

NKD, already in the throws of a death cross, tested the neckline of several H&S patterns yet again.

And, ES?  It’s in its own little world — enjoying being the world’s reserve carry-trade recipient.And, it might just keep on working…until it doesn’t.  If the Nikkei neckline doesn’t hold, it’ll be awfully hard to keep USDJPY afloat.  And, if USDJPY tanks, ES/SPX should be close behind.

GLTA.

UPDATE:  2:45 PM

SPX is targeting the neckline at 1837.62, but might tag the .382 at 1836.4 — just below the former low in order to trap more bears playing the H&S.

NKD has already tagged its upper neckline and .886, but might take a run at the lower one at 13,885 — again, the better to screw over more bears.

Note that these lower lows have been accomplished without lower USDJPY — meaning a bounce at the necklines is likely IMHO.

The fakeout on USDJPY is the former low at 101.20.  Blowing through it won’t matter, because there’s an important .886 at 101.13.

Ditto for ES, which has support at the white .382 at 1828.71 if/when 1830.75 fails.  If that doesn’t hold, the SMA100 and channel midline is at 1817ish (1828ish for SPX.)

Those new lows might be the reason USDJPY has been going sideways.  It might take some decent firepower to accomplish the final push.

 

USDJPY plunged to 101.54 yesterday — very close to our 101.50 target.  It bounced at the red .886 retracement, a legitimate spot.  So, we could be in for a bounce, or we could see another small wave down first.

Such a drop to the white target would, IMO, better flesh out the rising red channel — but, it’s already close enough that investors might consider the move done.  Interestingly, though, the bounce we’ve seen so far is having trouble rising back above the white channel midline.

So, we’re left with a fight between rising channel bottoms (red, gray and white) and the falling white channel midline.

I’m keeping an eye on the Nikkei, as it’s back below channel support and appears likely to continue dropping to at least the H&S neckline.

ES is up 5 pts after bouncing, as expected, at the SMA50.  Ordinarily, I’d say the bounce should reach at least the broken white channel midline.  But, the USDJPY might keep a lid on things.  We’ll find out shortly.

UPDATE:  9:50 AM

The white midline held so far.  So, we’ll set our sights on a deeper retrace or a last wave lower for a more meaningful bounce.

One caveat:  as we’ve discussed for months, the yen carry trade is huge.  If enough players rush the exits all at once, forget about all those channels holding.  It’s a long way down — for USDJPY and for equities.

This is our medium-term thesis, and I suspect it to play out sooner rather than later.  In other words, a bounce is by no means assured.  It all boils down to how well TPTB can keep things under control.

ES is building a nice little flag pattern — and sputtering near the backtest of the rising white midline.

UPDATE:  12:40 PM

USDJPY just backtested the latest fib fan line at the .382.

The Fed minutes aren’t due out until 2pm EDT, so the pair has some time to kill.  ES is stuck right at the midline — about .382 of the drop from 1892.5 to 1830.75.

My best guess is the market will react negatively — based on the fact that the initial reaction to the Fed statement [READ IT] back on Mar 19 was a 25-pt drop.  But, that drop was erased by a massive Plunge Protection Team effort, and a ramp job that carried into the following morning when the press trumpeted a bevy of mixed (at best) economic news.

Here’s an updated forecast. (continued for members) (more…)

Seemingly everyone has assumed that the BOJ would step back in and ramp up their QQE and asset purchases.  The consensus was for a doubling of ETF purchases.  Yet, as we’ve discussed many times [see: Sayonara Abenomics], the BOJ is between an inflationary rock and and debt hard place.  Last night’s decision to hold the course — music to bears’ ears — has disappointed a great many investors who were counting on the music never stopping.

Our major thesis since late December [see: Update on NKD & JPY] has been that a stronger yen would do some real damage to equities.  Now that it’s happening, the question becomes “how far?”

I have been unable to quantify the size of the yen carry trade, but my sense is it’s much greater in size than existed in the previous unwindings of 1998, 2002 and 2007.  Margin debt is as great as it’s ever been; and, stocks are priced at the same high multiples.

One thing for sure: the bulls won’t just roll over.  If this sell-off gets serious enough, we can expect a lot of jaw-boning from the usual suspects.  And, if that doesn’t work, the Fed can always taper the taper (to, you know, “reduce unemployment.”)

But, we’ll likely see more downside first.  Keep an eye on the targets we discussed yesterday.  The first — the SMA50 at SPX 1840/ES 1831 — should arrive shortly after this morning’s open.  continued for members… (more…)

The panic felt on Friday over a 1.3% drop was surprising, given that the markets were still up on the week.  What will investors do when they face a real plunge of 5-10% or more?  On Apr 14, 2000, SPX dropped 100 points in a day — a drop to get excited about!

While things started out pretty well, by the end of the Friday’s session the drop felt tired and back in control — if it was ever out of control.  USDJPY fell to the .382 retrace of its last rise, fleshing out a rising channel bottom.

ES busted the crazy-steep purple channel, but never broke the rising white channel midline until last night — only to bounce back.

SPX found support at the latest .618 — near the purple midline and a channel bottom — but will probably benefit from a slightly lower bounce.

Bottom line — I’m certainly not turning bullish, but the potential for a bounce here shouldn’t be ignored.  Keep an eye on the yen — the driver of the whole mess.  If it can hold 102.98, we should be off to the races.

UPDATE:  1:55 PM

102.98 has held so far, even as SPX/ES managed to put in another lower leg as expected.  Aside from the highly leveraged go-go names that are over-represented in the hedge fund world, this decline still feels rather “managed.”

I’ll take a stab at some downside targets.     continued for members… (more…)

Lots of action in the USDJPY in response to the employment report.  This is a 1-minute chart:

DX initially dropped from 80.73 to 80.55, only to be bid aggressively (thanks, Haruhiko!)

I continue to expect it to benefit from a falling euro but get dinged by a rising yen — in other words, more see-sawing between 80-84.

I expect the BOJ won’t take any additional easing measures in the their first April meeting next week, even though the damage from the increased sales tax will have already begun.  This should rattle a few carry-traders.

The daily chart shows the five day spurt sputtering yesterday, having difficulty topping the TL from 1999 that it first backtested on Mar 7 [but, popped above following Yellen’s testimony on Dec 18; like the 10-yr, it’s looking like a ramp job that lost its footing.]

The BOJ has their hands full.  Unlike the Fed, which bristles at the suggestion that it’s propping up equity markets, buying equities outright is part of the BOJ’s master plan.  They arm-wrestled the Nikkei back into the broken channel from 2011, but just ran into the falling purple channel top and the .886 Fib (white.)

No help from the Fed today, as it’s one of only 4 days without POMO (also April 17, 18, 30) left in the month.  But, the ramp is already in.   SPX will be looking to bag 1900 today.

Lest anyone look at this as a “healthy” market, the trend of all the market’s gains coming in the after hours continues [see: Are Bears Doomed?]  In the past week, 62 points of the e-minis 48-pt net gain have come overnight.

UPDATE:  10:34 AM

If this channel breaks on USDJPY…

…the daily RSI suggests at least another leg down.

But, as we discussed yesterday, a lot of damage has already been done to the bears’ case.  Remember that well-formed H&S Pattern?  Toast.

UPDATE:  2:35 PM

Getting close to a good bounce spot here at 1856-1858.

UPDATE:  2:50 PM

Logical place for a bounce here at the purple .618…

…especially since USDJPY just tagged a .382.  It’ll be interesting to see whether or not USDJPY tries to retake that channel.

If the Fib levels don’t hold, the white channel midline on ES is around 1850ish.

Crummy initial claims, crummy trade data and no stimulus from the ECB — so naturally the futures are up.

The USDJPY has pushed above the TL from ’99, though it remains to be seen whether it can remain above beyond intraday.  The .786 at 104.42 has come into the rising white channel, and thus is a possible intraday target.

UPDATE:  10:25 AM

Despite the lack of stimulus, EURUSD just made a lower low and appears to be closing in on the 1.36 level.

USDJPY reversed off the white .707 and yellow channel top and is back below the red TL.  ES should follow suit.UPDATE:  12:40 PM

Channel and Fib support here at ES 1877.50.

The midline of the rising purple channel is around 1900 at the end of the session — a tempting target for the bulls.

But, watch out around USDJPY 104 — the .618 of this morning’s drop and the midline of the rising white channel (already broken, this is a back-test.)  Should USDJPY run out of steam here, it opens up the C wave to 103.57-63 to test the bottom of the white channel.  ES wouldn’t react well.

 

 

ES seems intent on reaching the higher Fib levels around 1903-1909, with yesterday’s Fed induced ramp largely responsible for the push above the yellow 1.272.

But, keep an eye on the analog we discussed yesterday.

USDJPY had a correspondingly strong move which topped the Mar 7 high, but failed to clear the TL from 1999 (red, dashed.)

This TL has been very important in the past, providing support in 1999 and 2004, and resistance in May 2013.

It was busted on Dec 18 when Janet Yellen confirmed tapering was, indeed, going forward  — and TPTB threw everything they had at the markets to demonstrate how this was a “good” thing.

We had a month or so of prices above the line, but they fell back below in late January and — despite back-testing it twice — have, as yet, failed to retake it.

This is the exact same phenomenon we saw in TNX.

Yields popped up above the yellow dashed TL on Dec 18, fell back below on Jan 10, and have remained below it ever since — despite three attempts at retaking it.