As we discussed Friday, USDJPY closed below its 200-day moving average for the first time since Nov 13, 2012.  Back then, SPX was about 30% lower (1376) and the Nikkei was 40% lower (9,230.)  The big question before us:  now that Abenomics is coming apart at the seams, can we also expect the boost Japan’s QQE has given stocks to unravel?

Remember, even though Abenomics as an engine of economic revitalization is failing, the BOJ is still actively propping up equity prices and suppressing the yen.  It remains to be seen how players in the yen carry trade will react to the SMA200 breech.  Some will bolt; but, the biggest carnage would come with a drop below the 2014 floor of 100.746.

It’s worth noting that USDJPY has also completed a bullish (for the pair) Gartley Pattern, with the tag of the .786 occurring yesterday.  Given that it’s the last day of the 2nd quarter, the bots should be out in force — putting a little wax on this clunker of a “market.”

 

While Friday’s close was unsettling and we saw the first tiny wave of panicky action in quite some time, TPTB still have their sites set on SPX 2000. There is no law that states a move below the SMA200 must produce follow through.  Chart patterns and technical analysis that are normally quite reliable have been busted more times than I can count this past six months.

There are many ways to prop things up if they so choose.

No POMO today, and more horrid news out of Japan.  As we’ve been discussing for quite some time [see: Sayonara Abenomics] Abenomics is doomed to fail. Last night, we received more hard evidence:  consumer spending plunged 8% and inflation soared to 3.4% — well above Abe’s 2% goal.  More easing is supposedly off the table, and another 25% tax increase is on the way.  No way to run an asylum…

Bloomberg does a good job of summing it all up HERE.

The Nikkei futures are off 200 points, and USDJPY is currently down .30, trading well below the SMA200 and nearing the .786 Fib level (101.24) we discussed the other day.

Oh, did I mention there’s no POMO today?

 

UPDATE: 3:10 PM

45 minutes left, and no run at the SMA200 (101.713) yet?   Uncharacteristic big swings in equities in what is usually traction mode time for SPX.  Either USDJPY gets its butt in gear real quick or it could be a ugly close.

Why?  The last time USDJPY closed below the SMA200 was Nov 13, 2012.  NKD was 9,230 (now 15,120) and SPX was 1376 (now 1948.)

 

 

 

USDJPY is front and center today, currently trading below the SMA200 and hemmed in by the daily cloud. I wouldn’t be at all surprised to see it test a lower Fib level — the .786 or .886.  Stocks should respond in kind…if traders aren’t too mesmerized by the GoPro IPO.

CNBC’s marketing contract must specify that they say the word “GoPro” at least 10,000 times per hour.  It might be a good product/investment, but the coverage is like one of those late night infomercials.

 

UPDATE:  12:10PM

USDJPY is back to the SMA200 under control of the algos, with ES climbing along the 5 and 10 min SMA min as yesterday. NKD is back to the .786 of its pre-opening highs in a carbon copy of yesterday.

 

Note that, yesterday, NKD turned at the tend line shown (point “a”) while today it was the SMA10 (“b”).  In both cases, ES and USDJPY turned on a dime in anticipation of NKD’s reversal at its moving average.

In an unrigged market, USDJPY wouldn’t sail right back through the SMA200 (ditto for SPX and its SMA10.)  We’ll see if the algos can maintain control.

Here’s a look at the 1-minute chart.  The correlation is easy to see.  Watching them live, side-by-side, it’s obvious that it’s causation rather than just correlation.

Worst GDP miss in years, “market” is up.  Makes perfect sense…

Look no further than USDJPY and NKD, which — after a very weak after-hours — suddenly spiked at 9:30.  USDJPY tested the SMA200 and NKD a trendline before the session opened, but neither spiked until the cash market opened.  Good thing it’s not rigged (sarc.)

ES rallied 11 points, SPX 7 points.  We should either see a breakout here or a replay of yesterday’s meltdown with the rally acting as a flag pattern, with continuation down to1934ish.

USDJPY, pushing up against a bearishly aligned SMA10 but in a fairly well defined rising channel, is looking weak this morning…

 

… though NKD is ignoring it for the moment.

If they can both hold their rising channels, equities should tag along.  ES has dropped out of the rising white channel, but that hasn’t mattered much lately as NKD/USDJPY can negate just about any resistance — technical or otherwise.

UPDATE: 11:00AM

USDJPY to the rescue yet again.  Note the spurts higher it makes, dragging ES up through what would have been harmonic resistance back when stocks used to correct every once in a while.

USDJPY should be able to let some air out, maybe backtest some of the broken SMAs, as NKD has elevated to the .886 and is likely to stay there — or higher — until the close.

UPDATE: 12:15 PM

What happens when ES threatens a move lower?  It ticked down 0.25 points a moment ago…

…triggering this immediate response from USDJPY…

…and NKD.

UPDATE:  1:50 PM

Live by the sword…

Real live downside in stocks after the 2-yr auction belly-flopped.  Stick save (so far) courtesy of NKD.

USDJPY continues to be boxed in between lots of overhead pressure, including the daily cloud, and the SMA200.  The 15-min chart shows a triangle setting up, reflecting the likelihood of a directional breakout soon.

Bonds have been a pretty indicator of equity moves in the past, but have lost some predictive ability as prices are currently rising in concert with stocks.

Quad-witching day, but no POMO.  Should be interesting…

USDJPY is threatening to break out, but neither IH&S has played out yet.  A break above the red TL/yellow neckline should be eventful for stocks.  A potential run up to the .786 or .886 should usher in new highs.

 

 

If USDJPY reverses off this resistance instead, stocks could flesh out one of the rising channels.  Yesterday was one of the few days lately when SPX didn’t exceed its .886 on the day (after the previous day’s FOMC rally.)

Someone forgot to turn on the Dow’s algos, which didn’t share SPX’s enthusiasm for Yellen’s non-answers.

UPDATE:  EOD

Pretty weak close.  Equities tried to rally at the close with the usual VIX monkey-hammer, but couldn’t even top the session’s earlier highs.  USDJPY was no help at all, failing in the crucial last hour or so after topping the neckline earlier in the day.

USD weak against the euro, too.  Could the rest of the world’s efforts to ditch the USD as reserve currency be bearing fruit already?  Very interesting…

 

It’s hard to watch these Fed things anymore.  The FOMC knows all too well the damage it’s doing to market integrity.  But, it has no choice, given that higher interest rates or a serious correction would nuke the economy.  We, as a country with $17-18 trillion in debt (actually $60 trillion), can’t afford higher rates.  And, global financial institutions, with $1.5 quadrillion in derivatives, can’t afford another market meltdown.

This brings me back to Japan.  I focus on Japan so much because the US is heading down the exact same path:

• central bank suppressing interest rates out of necessity
• central bank supporting equity prices
• no mathematically viable exit, as the growth in debt is exponential

The talking heads are right in the sense that Yellen’s comments are bullish for stocks.  She brushed off inflation as “noise” and complacency/over-valuation as non-existent.  Investors are right to expect no tightening anytime soon.  So, the only risk to markets is, theoretically, from macroeconomic, geopolitical, or earnings surprises that are so significant that TPTB can’t quickly counteract their effects on stock prices.  Think another Lehman, Fukushima, oil shock, war, etc.

BTW, these things are happening now.  There are numerous Lehmans in the world, but they are being propped up by central banks rather than being left to fail.  Fukushima isn’t fixed, even though the mainstream media pretends it is.  An oil shock is a pretty good bet — with crude light already up 20% since January.  And, wars…take your pick.

The “market” simply doesn’t care anymore.  Dips are quickly bought, crushing short sellers.  Nightly ramp jobs keep things on an upward trajectory.  And, the yen carry trade is always available to ramp up prices for no reason whatsoever at any time.

Like the FOMC, the BOJ effectively buys all new debt issued, keeping interest rates near zero.  And, they’ve demonstrated their willingness to not let the USDJPY drop below 101, nor the Nikkei below 14,000 (they hold 4 trillion yen in stocks now and are adding another trillion per year.)

It’s not so much a market anymore, but a slot machine with a guaranteed payout.  TPTB will let the air out when they feel like it, and are correctly positioned in advance.  This cartoon posted 4 years ago has proven to be the best prognosticator of market behavior around.  BTFD indeed.

We can’t know when the music will stop, only that it will.  With extremes in sentiment, margin debt, P/Es, volatility (lack thereof), it’s pretty apparent that something wicked is waiting in the wings.  VIX under 10 is a pretty good sign.  There are many others.  And, given the extent of the runup and the quadrupling of the derivatives market since Lehman, the unwinding will be much, much worse.

 

 

Fed announcements and press conference today, so the market should bounce higher afterward regardless of the results.  Remember, it’s the illusion that’s important — that whatever they announce is great news.  Doubters, check the market’s reaction on Dec 18 to Yellen’s confirmation that the Fed would, indeed, taper.

Speaking of illusions, the BOJ pulled a doozy last night.  Stocks soared and the yen fell after more dismal economic news.

Many have noted the IH&S on the USDJPY — which certainly could play out.  Worth watching…

US stocks are. so far, ignoring the fact that mortgage applications fell 9.2% last week — supposedly due to a 2 bps increase in rates.  SPX has TL resistance at 1944-45, in the vicinity of the purple .618 at 1944.18.

UPDATE: 11:50 AM

This bounce in stocks is brought to you by the friendly neighborhood folks of USDJPY — which is backtesting its broken channel as ES/SPX are backtesting their SMA10s. But, don’t be surprised if the moving averages offer little resistance.  The deck is stacked, and there are very few investors willing to step in front of a well-planned ramp job.

In the news last night, the BOJ is now the single biggest holder of Japanese government bonds.

 

What some folks forget is that the BOJ also purchases about a trillion yen of stocks every year, too — in addition to about 4.2 trillion already on the books.  There has been some talk in the past of selling the position, but every time a deadline approaches…they just can’t seem to pull the trigger.

If you were the biggest investor in the bond market and the biggest investor in the stock market and had an unlimited amount of money with which to “intervene” in the unregulated foreign exchange market…would you allow any declines in value?  Neither would they.  The 1% rule is alive and well.   And, via the yen carry trade, it’s helping inflate other bubbles from New York to Mumbai.

Happy trading.

 

 

 

 

 

 

 

 

Double dose of crummy economic news this morning: CPI that overshot estimates and housing starts/permits that didn’t.  Those of us of a certain age remember well the term “stagflation.”  It is used to describe the combination of low economic growth, high unemployment and high inflation.  While central banks have been warning of deflation for some time, anyone who buys gas or food would argue that their budgets have not been squeezed by lower prices.

The only thing missing from the stagflation equation has been a supply shock that caused a rapid increase in consumer prices.  Forty years ago, it came from the 1973 oil crisis.  Good thing we don’t have to worry about that.  Oh, wait…

Some might remember this chart comparison of the DJIA in the 1970’s and the current pattern from a few months ago [see: Eye Candy for Bears.]

The pattern on Mar 14:

Sure, it’s a little higher now (16,770.) The Butterfly Pattern was busted.  And, we have central banks that think nothing of pumping trillions into the “markets” to keep asset prices on the rise.  But, it sure gives one pause…