Today should be a carbon copy of yesterday: ignoring dismal economic news, ignoring the 10-yr note warning signs, ramping on USDJPY/NKD, BTFATH, etc.  Chart Patterns, Elliott Wave, technical analysis do not apply on the last day of the month which, for PR purposes, has been green for the past three months.

Unless a true black swan event pops up, look for new highs above the Crab Pattern 1.618 Fib of SPX 1918.36.  A logical target would be the smaller, red 1.618 (1926.77.)

The bigger picture:

Come Monday, it could be completely different story.  But, I can’t imagine TPTB yielding the larger scale 1.618 that they spent so heavily to achieve.

UPDATE:  1:25 PM

What happened to the nice little rally we had going?  Loretta Mester is the incoming president of the Cleveland Fed — and a voting member.  At a conference on inflation the Cleveland Fed is sponsoring, she made comments about the risk of inflation (right, not deflation as we hear over and over.)  This brands her as a potential hawk, and opens a window on the changing dynamic in the FOMC’s thinking.

10-yr yields broke a rising trend line — though they were quickly neutralized by TPTB.  SPX and ES retraced .886 of the rise from this morning. USDJPY fell back below the SMA20. And, SPX is back to that 1.618 and trying to rebuild some momentum.

As I was typing this, John Wiilliams (SF Fed) was on CNBC talking about the possibility of overshooting 2% inflation.  The “market” isnt’ so happy about all this crazy talk!

I’m having intermittent technical issues today, so will not be posting intra-day.  The daily charts tell the story: a 1.618 Fib line just overhead at SPX 1920.63 and ES 1910.50.  The only issue…the markets have routinely ignored harmonics when it comes to limiting rallies (while choosing the most bullish Fibs to limit declines.) Note the veritable absence of Points B & C in the proposed Crab Pattern (in yellow.)  Today is the biggest POMO day of the month, and the end of the month is tomorrow (photo opp.)  So, don’t put too much stock in technical analysis, chart patterns, the contracting economy or crappy earnings.  Revel in the fact that Apple is paying $3 billion for some headphones.  In other words, trade safe and pay attention to what price action is telling you — no matter how contrived (yes, rigged) it obviously is.

The PPT swinging into action this morning in the unrigged “market.”  The 10-yr note is coincidentally bid at the former lows…

NKD catches a bid at the channel bottom…

…and, ES catches a bid at the 1.618 it should be reversing off of.

 

Make no mistake, the market should be tanking.  But, the month end is Friday, and it would look really bad if it ended on a sour note. So, it’s time to pull some tricks out of the bag, like this takedown in the 10-yr futures last night.

By far the most startling data I’ve seen lately was posted on Zerohedge yesterday.  For those who have been wondering where all the buying pressure at all-time highs is coming from… wonder no more.  Per Zerohedge:

According to the most recent CapitalIQ data, the single biggest buyer of stocks in the first quarter were none other than the companies of the S&P500 itself, which cumulatively repurchased a whopping $160 billion of their own stock in the first quarter!

 

Should the Q1 pace of buybacks persist into Q2 which has just one month left before it too enters the history books, the LTM period as of June 30, 2014 will be the greatest annual buyback tally in market history.  And now for the twist.

Unlike traditional investors who at least pretend to try to buy low and sell high, companies, who are simply buying back their own stock to reduce their outstanding stock float, have virtually zero cost considerations: if the corner office knows sales and Net Income (not EPS) will be weak in the quarter, they will tell their favorite broker to purchase $X billion of their shares with no regard for price: the only prerogative is to reduce the amount of shares outstanding and make the S in EPS lower, thus boosting the overall fraction in order to beat estimates for one more quarter.

Compounding this indiscriminate buying frenzy is that ever more companies (cough-apple-cough… and IBM of course) are forced to issue debt in order to fund their repurchases. So since the cash flow statement merely acts as a pass-through vehicle and under ZIRP companies with crap balance sheets are in fact rewarded (as even Bloomberg noted earlier) the actual risk of the company mispricing its stock buyback entry point is borne by the bond buyer who in chasing yield (with other people’s money) serves as the funding source for these buybacks.

Happy trading!

UPDATE:  1:15 PM

The “market” is stuck trying to decide whether the stick save will suffice.  Note the distinctive flag pattern on 10-yr note yields.  There’s much more potential downside, but they’ve done a fair job of turning it sideways for now.

ES shows a likely IH&S Pattern in the works (targets 1918.55.)  The only problem is that 1.618 extension at 1910.51. The neckline at 1911.50 matches up with SPX’s high of 1913.62.

Note: the equivalent 1.618 for SPX is way up at 1918.36 — an obvious mismatch and another source of the “market’s” confusion.

The upside is having trouble getting going because USDJPY — which is stalling at the SMA20 — badly needs a trip down to the 200 SMA and purple channel bottom, and TNX has plenty more downside.  In short, the USDJPY/ZN/NKD ramp hasn’t shown up yet — and might not, today.

Tomorrow is setting up as a weak market on the face of it.  But, if the rampers can reset overnight, the upside targets have a shot — especially since it’s the biggest POMO day of the month.  Keep a close eye on the futures tonight.

GLTA.

Holiday weekend + Tuesday + 1900 barrier broken = strong ramp.  NKD hit an imporrtant Fib level and the SMA100, but is probably aiming for the SMA200 and purple .618 combo at 14787/14796.  At some point, folks will start to realize the yen carry trade is nearing an end.

While, USDJPY features a nice Fib target of the combination red .618/blue .886 at 102.18 — just below the SMA50 at 102.22.

 

What does it mean for stocks?  continued for members… (more…)

Remember, no POMO today.  Our thesis about NKD was weakened as it popped a bit overnight.  There is still overhead resistance and a rising wedge, but not as compelling since it exceeded the 5/13 high.

Likewise, USDJPY was ramped a bit after the close yesterday, fell during Tokyo trading, and was ramped again after their market closed — testing the SMA20.

The near-term bounce should continue, but there remains the issue of the broken grey channel bottom and all those bearishly-aligned moving averages…

…not to mention decent channel resistance.

The e-minis have gone essentially nowhere after selling off at the close.

While ES tagged its .886 yesterday, SPX never reached its.  So, we could see another cycle up powered by USDJPY.  The only problem is e-mini buyers are reluctant to bid up over 1894.  By my calculations, getting SPX to 1897.63 will require ES reaching roughly 1895. Who’s going to bite the bullet?

It’ll take a big spike in USDJPY — pushing through the SMA20 at 101.92? — which normally would have occurred at 15-30 minutes prior to the close yesterday.  HP’s goof seems to have put a damper on the normal algo action.  Now…they’re a bit confused.

Back in the old days, before the word “market” required quotation marks, this wouldn’t be an issue.  Investors would look at things like earnings, the economy, geo-political events, etc and decide whether they justified higher prices.

I suspect it’ll happen, and what better time than a holiday weekend?   Low volume and minimal attention from real investors can work wonders — especially when the land of milk and honey lies just beyond 1900.

 

GLTA.

The problem with bubbles is you have to decide whether to look
like an idiot before they peak, or look like an idiot after they peak.
John Hussman

The Nikkei has been repeating a clear pattern for many months, now.  Each dip to the neckline of a large H&S Pattern has bounced back to a falling trend line — typically to whatever Fib level intersected with the TL.

Monday, NKD bounced off the neckline again.  It got a great boost from USDJPY’s reversal off the SMA200.  And, today, it has retraced .886 of its last decline.

Why does it matter?  continued for members… (more…)

Abe confirms no increase in QQE for now, so a measly ¥70 trillion per annum still.  The USDJPY wasn’t thrilled at the news, and traded down through the SMA200 yet again — this time testing the Feb 4 lows.

Needless to say, the lack of increases in QQE doesn’t mean the BOJ won’t work to cheapen the yen anymore.  And, they’re keenly aware of the technical picture.  So, I’ll be very surprised if they don’t get the pair back to the SMA200 in short order.

After that, who knows?  The SMA10 intersects with the .382 Fib at around 101.66 — slightly higher than the old high.  It would allow ES to make a new high as well, maybe tag the .786 at 1890ish.

From here on, it’s all about threading the needle between too high a yen (hurts exports) and too low a yen (imports too expensive.)

UPDATE: 9:00 AM

Just broke through and tagged the yellow channel midline, should at least backtest here.  ES tagged the SMA20 in the process.  Could be a very whipsawy day, with Fed minutes and govspeak coming up.  But, the bottoming candle on USDJPY should be quite bullish for stocks — if it holds.

UPDATE:  3:10 PM

Everything responded negatively to the minutes except for stocks, which soldiered on, propped up by the PPT as proof that nothing the FOMC has planned could ever possibly hurt stocks.

TNX was propped up until its close, but clearly has closing this morning’s gap in mind.

USDJPY dropped like a rock…

The 10-yr spiked higher…

But, ES was unphased as the PPT was buying with both hands.

Yet another tag for NDX on the neckline that just won’t die.

UPDATE: EOD

The rising ES channel (purple) contrasted with the falling USDJPY channel (red.)  We’ll watch to see if USDJPY can get back above the yellow channel midline after it digests its gains in the after-hours.

It’s not Home Depot.  It’s not the Keystone pipeline (though you gotta love Rick Perry’s new nerdy specs — pushup bra for the brain?)  It’s not housing.

Thailand is under martial law, and the bhat ain’t looking so hot.  Note the central banker prop job in play in the chart below.

The yen is the flight to safety for Asia — and, a sinking USDJPY damages the yen carry trade.

USDJPY quickly gave back .786 of its gains from yesterday morning (while ES fell .382.) The .886 is right alongside the SMA200 — a drop below would be quite bearish for stocks.  Though, the BOJ is almost certain to intervene.

Keep an eye also on the 10-yr.  Yields fell 27 bps on the opening.

GLTA.

 

 

We talk a lot about the markets being “propped up.”  It’s not just an expression, as the following charts for the Nikkei, USDJPY, DX and 10-yr note will affirm.  In fact, even a casual glance at the charts below should destroy any notion that these are “markets” any more at all.

Note the dashed, yellow neckline on NKD — even following the death cross back on Mar 28.

USDJPY, likewise, has been propped up above the Feb 4 lows, with seven stick-saves off the dashed yellow neckline.  The SMA200 finally arrived today to lend additional support.

The dollar’s latest death cross came way back in September.  But, it has been propped up at roughly 80 at least a dozen times since late 2011.

The 10-yr’s rising red channel midline gave up the ghost on Apr 9 following its death cross on Apr 3.  Since Thursday, it has been propped up above the TL connecting the July and October 2013 lows.

Each of these critical components of the yen carry trade are due for another bounce, providing a boost to stocks — which is, after all, the object of the whole exercise.

It does get tiresome, the talking heads blathering on about the signals being sent by the bond market — whether lower rates reflect a better economy, worse economy, or simply Fed tapering.  The bottom line?

As we pointed out way back in December, a plunging 10-yr has correlated with lower stock prices ever since Jan 2000.  The chart below reflects the two big declines — 48% and 52% — associated with TNX’s reversals off the white channel top in 2000 and 2007.

I wondered months ago whether we might get back up to the top of the channel by May in order to catch its intersection with the yellow .618 at 38.18.  But, a casual glance reveals that ship has probably sailed.

Since last departing the white channel top in 2007, the tops have come instead at the falling trend line (dashed yellow.)

While not as spectacular as the declines at I and II, the declines at (a) and (b) were pretty significant at 15 and 20% respectively.  TNX even traced out a third derivative — the steeper yellow trend line that produced drops in SPX of 10 and 9% (1 and 2.)

TNX got back up to the trend line off of 2007 on September 5, 2013 — at which time stocks might have reversed had not a series of ramp jobs and coordinated dip buying kept them inching higher.  On Dec 18, the day SPX spiked higher on news that the taper would in fact occur (the most bizarre PPT action in recent memory) TNX actually popped up above the yellow TL, only to fall back below it two weeks later.

Since then, it has managed to leak lower as stocks (but, not the SPX or DJIA) have stumbled.  It was badly damaged by the death cross on Apr 2 and plunged through the red channel midline (red, dashed) a few days later.  Note that the midline is highly evocative of the necklines on NKD and USDJPY.

Last Thursday, it found support at the TL (purple, dashed) connecting the July and October 2013 lows — although it briefly dipped below the October 23 low.

It wouldn’t surprise me — especially if USDJPY gets a good bounce off its SMA200 — to see TNX also bounce higher, perhaps to close the May 14 gap at 26.11 (also the SMA20 in a day or two.)  But if it dips below 24.71, the downside should be significant — to TNX and to stocks.

For the record, I don’t believe much lower rates — if they arrive — will be driven by supply and demand, higher or lower GDP, etc.  I think they’ll be driven by a flight to safety as investors flee a stock market meltdown.