Today’s setup: end of the month and holiday bullish bias and channel support versus disappointing economic data here and abroad (and, that war thing in Ukraine that the “market” doesn’t seem to care much about.)
One wildcard is Japan. The latest data was, again, horrid. But, there’s increased talk of doubling the country’s pension plan’s allocation of stocks. No economic recovery? No problem. The carry trade should be safe for a while longer.
So, the Head & Shoulders Pattern worked out after all. Miracles never cease. Last night’s plunge below the neckline hasn’t been erased by the inexplicable Q2 GDP estimate increase.
Quick update on ES, which saw an interesting turn of events today…
USDJPY is faltering. Recall that it recently tagged the large scale .618. It has been in pullback mode ever since. As I first charted in December 2013, pullbacks from the top of the yellow channel have always resulted in large stock market declines.
The latest, which started around the first of the year, hit a wall — or, rather, a floor. The BOJ has aggressively defended the 101 level — negating the damage to both the red and grey channel damage done over the past several months. Due to the wonders of the USDJPY carry trade, this has put a floor under stock prices as well.
As the rebound off the last bounce off the floor has accelerated, SPX (purple below) has hit new highs.
If USDJPY’s pullback picks up steam, stocks should at least take a pause. Keep an eye on the SMA10, which has held up since Aug 13. Two caveats before shorting anything:
One last warning…USDJPY’s SMA50 is gaining on its SMA200. A Golden Cross is in the offing if the pair can maintain its momentum for the next week or so.
GLTA.
No joy on ES’ H&S Pattern, as this morning’s push topped the potential head — just like last night’s dip below 1992.75 trashed the other harmonic patterns (and, stopped out lots of bulls, no doubt.) In short, the “market” isn’t sure what to do at this point.
Potential IH&S for ES? Looking for a potential pullback after SPX 2000, with USDJPY and interest rates representing at least temporary headwinds.
UPDATE: 11:00 AM
Small scale 1.618 for both ES and SPX.
The IH&S, if we get a pullback, for SPX. USDJPY is slumping, but stocks are ignoring it at the moment.
UPDATE: EOD
Save by the bell (and USDJPY.) Stocks reversed at the aforementioned 1.618, but weren’t allowed to get any momentum going. Interestingly, this leaves more downside potential.
The yen continues to suffer. Rumor is the BOJ is ready to admit things ain’t going so well with Abenomics — which would presumably increase the odds of expanding QQE. Not so sure about an expansion, as inflation is clearly becoming problematic (on account of the cheapening yen.) Then again, this the same government that refuses to tell their citizens the truth about Fukushima…
USDJPY tagged the .786 of the decline from the Jan 2 highs. The pair looks overbought at 104+ but that doesn’t mean it can’t be more overbought. CME/Globex has still not opened today (technical reasons) so who knows how US futures will respond.
The “market” is holding its cards close to the vest today, with everything poised to break out…just not doing it yet. ZN broke and is holding below the TL we identified a couple of days ago. And, VIX is channeling lower, backtesting the support we discussed yesterday.
USDJPY, in particular, isn’t contributing to the bullishness in the short run. As SPX comes up on its double top, remember that these patterns are not terribly reliable in an unrigged market. In this one, we should be especially wary.
GLTA.
UPDATE: 10:05 AM
Keep an eye on VIX, lots of games being played today.
The algos got going from the start, this morning. VIX pummeling turned what looked like a soft opening into new highs.
Lots of volatility, as is typical of Fed minutes days.
Trade safe…
UPDATE: 1:30 PM
The minutes are due out in 30-min or so. The algos have done their job, preparing the “market” for a breakout. Note VIX is back to the daily lows, and the 10-yr futures were jammed lower overnight through the red support TL we discussed yesterday.
SPX has not only retaken the .886 that should have caused more than a 4-pt decline, but has completed a small Crab Pattern on the day. Note the seeming inability to get anything going on the downside — the algos at work.
The chart below shows the dollar-yen’s intervention to rescue ES multiple time, and then shoe horn it up over the .886 we discussed yesterday. The red arrow IDs the midnight bump that broke the downtrend prevailing at the time. The others represent various other efforts to keep it on an upward trajectory. The latest, around 11:30 ET, prevented USDJPY from completing a little H&S pattern and allowed SP/ES to post new highs.
Remember that almost every minutes released in the past year produced an initial (sometimes meaningful) dip to suck in those willing to place a bearish bet, followed by a sharp snap back rally that punished those who questioned the Fed’s wisdom. GLTA.
UPDATE: 2:50 PM
Concerned, but accommodative, slack, debate, rate-hike, blah, blah, blah… Sellers tried to get some downside going, but USDJPY (in purple) kicked in before even a .786 retrace on the day’s gains and helped SPX back above the important .886 at 1981 and to new intra-day highs. Will these gains stick, or will be get another 3am “adjustment” in the eminis? Stay tuned.
Just a quick note regarding the 10-yr…
Still a lot of upside from a harmonic standpoint, with the .886 at 127’205 looking nice and juicy now that the falling channel purple is safely in the rear view.
Note the nice support on the 60-min chart that suggests another strong upside move is in the offing.
The bond market clearly expects something that the stock “market” doesn’t.
