In a move that surprised no one (except, apparently the market) China joined the party and ramped up its easing efforts by lowering interest rates.

The resulting effect on the futures, however, was to drive ES to the 1.272 Fib level — the upside target we identified a few weeks ago [see: Nov 4 update] and Fib reversal candidate.  So, as yesterday’s overnight futures action tagged an important support level (the SMA10), last night’s could have the opposite effect.

It’s important to note, however, that there was definitely no reversal at the .786 Fib level, meaning that nothing to date suggests completion of a legitimate Butterfly Pattern.  However, we have seen many, many 1.272 reversals along the way without a prior set up.  To review Butterfly Pattern rules, see THIS.

USDJPY rallied on the news, but is still well below the .886 we discussed at length yesterday and will probably continue to sell off near-term (for anyone who missed it, there’s trouble brewing between Abe and Kuroda.)  DX is rallying toward our 88.47 target — up to 88.295 at the moment.  However, it just completed a Bat Pattern at the .886 of its drop from 88.365 to 87.23 and might need a breather.

Bottom line, be cautious about chasing this rally.  If it weren’t OPEX, I’d say there’s high potential for a pop and drop.  As it is, any drop would probably have to wait until Sunday.

The equivalent 1.272 for SPX is 2073.28.  As we discussed yesterday, TPTB have been running indices up near, but not quite to, natural reversal points — mitigating the odds of a reversal during market hours.  Keep an eye on ES, USDJPY and NKD as SPX approaches 2073.28.  If they start inching lower, that’s what you should expect to happen today.

UPDATE:  9:39 AM

Getting close.  Will it make it, or will we see it peter out around 2071.65?  ES is notching lower, down 4.25 from it’s pre-opening highs.  If SPX does reverse short of 2073, look for a backtest of the broken purple channel for starters.

Anything more serious would mean closing the gap just created at 2050.75.  But, again, I expect this will wait till the after-hours Sunday or early Monday when only futures players can benefit.   Cash market investors have learned the hard way (like last night) what can happen when one leaves a short position on overnight.

Then again, there are about 8 such gaps in the wake of the rally from 1820 that the “market” seems to not be bothered with.  Why start worrying about appearances now?

 

NYA nearly completed a Bat Pattern a couple of days ago, coming within 6 points of the purple .886 at 10969.  While a reversal would seem to be a given, TPTB have been playing games lately.

First, they often bring an index just shy of a natural reversal point before easing off the gas.  By not quite touching the Fib level, it leaves open the possibility of another push higher.

Also, NYA has a history of playing along with whatever SPX and DJIA have going on — meaning it has no compunctions regarding the normal chart pattern rules.  We saw this in February, when the double top reversal couldn’t even reach the white .886 before screaming higher.

It happened again in August when the broken rising wedge was rejoined a few days later due to Fed chatter.  And, the only reversal of any note in the rally from 9886 was a very tiny one at the .786 — meaning, there is no harmonic argument for a Bat Pattern per se.

As a result, I’ll not consider the promise of a reversal impeachable until it actually happens.  NYA is back above the 1.00 Fib, and the white 1.272 is way up around 12,075.  Unless we get a USDJPY reversal in the 118-120 range, I’ll consider the target the purple 1.272 (11,440) around year end.

It can do so without even needing to retake the large, red rising wedge that broke down in September.

DJIA was poised to reverse at 17,030 — a back test of a broken rising wedge and a .786 Fib.  It had already put in a .786 move to the downside, indicating a possible Butterfly Pattern to 14,788 or Crab to 14,085 (light blue grid below.)

Then Kuroda decided to kick bears in the balls with his surprise Oct 31 announcement of much more currency and stock market manipulation. Like SPX, DJIA regained the broken rising wedge and going on to make new highs.

As USDJPY has continued to ramp higher, so has DJIA.  As it now stands, it has broken out of an extremely significant rising wedge (dating back to 2000) …

…and is closing in on another that points to 18,274.

The megaphone pattern is severely dented — which was, of course, the whole point of Kuroda’s action.  Whether or not the breakout is maintained will be revealed in the coming weeks, and will depend largely on whether USDJPY reverses at 118-120.

We called a top for RUT on Jan 21 when it completed the Crab Pattern at 1174 and were rewarded with a juicy 8% return over the next couple of weeks.

Following the decline, RUT went up and tagged a larger Crab Pattern Fib — the red 2.24 at 1200 — on Mar 4.  It liked that price level so much, it tagged it again on Jul 1 after dropping 11% in between (actually, the second low was 19 cents lower, and the second high was 73 cents higher — so technically, a megaphone.)

The third attempt at a higher high in early September failed, and produced a mere 7% bounce.  But, the subsequent drop into mid Oct was a pretty impressive 12%.  Of course, thanks to Bullard, it was followed by a 13% rally.

But, the interesting chart development is that the latest rally is outside of the rising wedge that’s been forming since 2009.  In fact, it’s a back test of the broken wedge and the red channel, both.Now, backtests can and — in this rigged market — often do go on to exceed previous highs.  So, the current one could easily climb right on up the belly of the broken wedge to 1213 or higher.  It could also, as we’ve repeatedly seen with SPX, break right back into the channel as if nothing ever happened.But, for those watching small caps, it certainly bears watching — especially if USDJPY puts in a top of any importance in the 118-120 range.

As we projected yesterday, USDJPY reached the .886 (118.59) retracement today.

In an unrigged market, this would suggest a potential major reversal as the pair completes a Bat Pattern.  But, of course, this is the BOJ and the Fed we’re talking about, so it’s entirely possible this resistance will be blown through as have many others.

The channel connecting the 1998, 2002 and 2007 highs has been broken — whichever way you draw it.  And, all we have left is Fibonacci levels and the rising gray channel from the 2011-12 lows.

Note that the white .618 retracement of the entire 1998-2012 plunge is just above at 120.05.  Seeing as how the dollar is still shy of its own Bat Pattern (88.477) we could see some consolidation here and a final push to 120.

In other words, don’t attach too much importance to this pullback, as it could easily be a head fake.  USDJPY has a TL of support at 117.8, and TPTB will no doubt be looking at ways to limit the downside ahead of the weekend (tomorrow is OPEX, after all!)

In fact, with the futures pointing to a 10-point decline, there seems little doubt that SPX will finally reach not only the 5-day but the 10-day moving average as well at the opening.  As we discussed yesterday, a new all-time record (24) was set for the number of sessions where SPX closed above the SMA5.  Finally reaching the SMA10, after so many days of straight up, is another reason for algos to bid the “market” higher.

UPDATE:  9:55 AM

SPX reached the SMA10 and bounced 5 points off the opening lows, led by ES and with a clever assist from VIX.

On Tuesday [see: Update on VIX] we put a target at 15.55 for Thursday.  Well, we just hit it — but, in a very suspect way.  With futures down 10 points at the opening, it was normal for VIX to open higher, which it did — 14.66 versus yesterday’s 14.02 close.

But, then, after SPX tagged its SMA10 and stocks were screaming higher, VIX soared up to reach our 15.55 target in a matter of a few seconds.   To state the obvious, VIX is supposed to plunge when stocks soar.

The bigger picture:

Now, all that is strange enough (not to mention prima facie proof of using VIX to manipulate the market.)  By tagging the resistance at the purple channel midline in a split second, before stocks have a chance to react, VIX was free to make new lows — justifying higher prices ahead.

But, wait, there’s more!  As I was typing just now…

Apparently someone felt the need to tick the white 1.618 box on the checklist, and just as quickly let the air back out of VIX.  Madness, to be sure, but to what end?

I suspect TPTB intends to keep a lid on today’s bounce.  First, there was some atrocious economic news out of Europe, Japan, China and the US.  And, it might look bad if the “market” rallies every time there’s bad news.

Second, there’s the 5-day moving average.  As we discussed yesterday, the fact that SPX hasn’t closed below it for (as of yesterday) 24 days was getting (horrors!) mainstream media play.  With the SMA5 currently around 2045, why not just let it close there and quiet the criticism of the market being rigged.  Complete a Bat Pattern on SPX first?  Just a thought.

In any case, keep an eye on VIX.  It’s no more a fear index than current stock prices are an accurate indication of the present value of a company’s future cash flow.  But, it might offer some clues as to the script being written for the next week or so.  More later.

 

 

 

SPX nailed the higher of our two upside targets near the close yesterday — the purple 1.618 extension.It has also clearly risen above the red, dashed trend line connecting the previous tops.  If it successfully backtests this TL, expect to see continued strength to the larger scale 1.272 extension at 2073.28.  If not, more downside ahead.

As usual, it has help from USDJPY — which last night reached another new high: 117.67 (so far.)  I continue to expect USDJPY to reach the .886 Fib level at 118.59 before it undergoes any significant corrections — if then.

It appears that the second of the two rising wedges (a bearish pattern, shown in red above)  is being groomed as a rising channel (bullish, shown in purple.)  It could easily reach the .886 as early as tomorrow morning, but we could also see a series of headfakes in between here and there as it fleshes out the purple channel.

The dollar continues its coy ways, hanging about the small, red 1.272 extension after completing the Crab Pattern last Friday.  This would normally be a quite bearish development, as DX and SPX have been highly correlated of late.

But, as we’ve pointed out many times, the purple .886 at 88.48 remains the much more important upside target — and one which I suspect TPTB will pull out of their bag of tricks when the need arises (rising dollar = rising USDJPY = rising SPX.)

Like USDJPY, it could happen as early as tomorrow and be in keeping with the other chart patterns — in this case, the rising white channel midline.

UPDATE:  10:10 AM

The red TL did not hold the backtest attempt, a bearish development.  Note that VIX not only backtested the falling white channel, but popped by 10.5% afterwards [see: yesterday’s update on VIX] to reach the white .886.

I suspect it’ll be monkey-hammered back down at this point, and SPX will bounce off the red .786 as NKD and USDJPY retake their rising TLs.

But, if not, there remains the matter of the SMA10 way down at 2037.52.  One of these days…

Jonathan Krinsky of MKM has made headlines lately with the observation that SPX has closed above its 5-day moving average for what, as of yesterday, was 23 days in a row.  This has only happened twice before.  As in “ever.”

In December of 1996, SPX fell 5.9% over the ensuing 11 sessions.  While in July of 1998, it fell 11.2% in 12 sessions and 21% in 31 sessions.  Of course, back then, central bankers weren’t co-hosting CNBC and brazenly propping up markets.

A close above 2043.99 (updated 3:45) today would set a record.  And, while that might sound quite bullish, it might also bring unwanted attention to the farcical antics of the stock “market.”  Regular readers of this website are well-versed in the manipulation that has reinflated bubbles in nearly every investment class — but, especially stocks.

But, the TPTB might wish to avoid the scrutiny that would accompany the headlines of a new, 24-day record — especially when earnings and economic news has been so disappointing.  If so, look for a SMA10 tag and recovery to somewhere south of 2044.  At this point, this is my base case going forward.

If not, and they choose to ignore the incredulous stares of those who can see behind the curtain, there’s still a good chance of a tag and bounce at 2037.  VIX at 14.55 looks to me like an interim high, at best.  The better targets are up around 15.17 and 15.72.

UPDATE:  2:55 PM

The SMA5 now stands at 2043.65.  Seeing as how SPX is lurking around 2046, and seems to be in no hurry to bounce back with an hour left in the session, I’m liking that theory discussed above even more.

We’ll see if the algos can resist the urge to ramp up into the close as usual.  Keep an eye on NKD.

UPDATE: EOD

Well, that theory completely crapped out.  We have a new record — 24 days without a close below the 5-day moving average — to underscore just how wonderful the economy is.

In the end, it was the Nikkei 225 that couldn’t contain its algorithmic enthusiasm.  Note how ES dropped like a rock when NKD’s triangle originally broke down.  But, it bounced back with a vengeance when NKD broke back above the triangle.

Nothing to do with the economy, interest rates, earnings, etc.  Just a computer-directed trading program that buys NKD contracts in order to goose ES, which in turn gooses SPX.  A grand total of 407 NKD contracts traded between 3-4pm.  That’s $35 million nominal — $1.7 million worth of margin — moving 159,500 e-mini contracts worth $16.3 billion and whatever the cash value of SPX was during that time.

USDJPY was fairly neutral through the last hour of trading, but VIX helped ramp stocks higher — falling from 2:45 through the close even though there was Fib fan support.  The brief peek above 14.73 was a nice head fake — no doubt stopping out lots of folks who follow it.

Just another day in the unrigged market…

 

 

 

 

 

 

VIX continues to hold its own since completing the Bat Pattern (in purple) following Bullard’s mid-October smackdown.

Since tagging the purple .886 on Nov 10, VIX has climbed steadily — following the Fib Fan lines fairly faithfully.  If today’s low holds, I can easily see a backtest of the falling purple channel midline in the next day or two.

Whether it exceeds that level is hard to tell, as the daily equities melt-up smacks of continued intervention at every turn.  In other words, the yen carry trade is alive and well until TPTB decide to let a little air out.

And, should it fail, shorting the VIX is the next most favorite central planning tool.

 

USDJPY has gone sideways for the last few days, always careful to reacquire the rising wedge lower bound whenever SPX starts to falter.  The Japanese consumption tax increase is almost certain to be postponed, now.  That, and the snap election, are already priced into the “market.”

NKD is consolidating in the 16,900 to 17,600 range, still with no signs of any meaningful retracement of the Oct 31 rally.

ES is flat after bouncing around, taking out stops all night.  SPX’s 10-day moving average finished at 2033.55 yesterday, so that is our new downside target for the day — only 1 point below yesterday’s low.

So, in the end, SPX never did dip to the SMA10; the SMA10 is rising to meet SPX.  It’s another clear sign of the degree of manipulation of this “market”, when not even a simple backtest of a bullish support is permitted.

Because, of all the squiggles on the above chart, the only one that really matters is the thin purple line marking the USDJPY, which remains only too happy to rally any time stocks start to lose their footing.

UPDATE:  11:15 AM

Case in point…note the leap higher for both USDJPY and NKD when the cash markets opened at 9:30 (6:30 on the charts, shown with white circle.)  The futures had been slightly negative in the minutes leading up to the open, and needed to spark to continue the melt-up into the session.

SPX is nearing the interim upside target — the 1.272 at 2050.46.  Prices should ebb here to 2044-45 or so (ideally, 2044.39 at 12:30.)  If not, the next upside target remains 2055.91.

UPDATE:  3:15 PM

SPX just reached our 2055.91 target (the white 1.618) and has tagged the rising red TL. ES is just a point shy of its 1.618 extension (2055.17).  In addition, USDJPY is at the .886 retracement of its drop from earlier this morning, and VIX has backtested the falling white channel and recovered to above the bottom fan line.  Equities should reverse here.

 

In news that shouldn’t have surprised any of our readers, Japan has officially dipped back into a recession.  The Nikkei 225 futures plunged 680 points (3.8%), but is still treating the yellow .886 as support.

USDJPY dropped from 117.04 to 115.44 (1.4%.)   The e-minis responded by dropping as many as 14 points from Friday’s close before the BOJ jammed the USDJPY back into the rising wedge it has been in since Nov 9, and presto! ES is back to a more acceptable 5-point drop.

Otherwise, nothing much has changed over the weekend.  The US dollar stopped just shy of the .886 we’ve been watching: 88.365 v 88.477.  And, the SMA10 for SPX is a tad higher post Friday: 2031.20.  I think there is an excellent chance SPX will dip down and tag it today in order to quell the (quite accurate) criticism that the market is behaving irrationally.

In fact, I wouldn’t be surprised to see it dip at least a little lower, perhaps 2028.  This will complete a H&S pattern (the red neckline) and, since it will produce a lower low, will also run quite a few stops.

GLTA.

DX is almost to the .886 we’ve been watching…

While USDJPY is running into TL resistance and might digest the week’s gains ahead of next week’s tax break news…

And, SPX is due a reaction at the red .618 if nothing else.  SMA10 is up to 2029 now and also marks the spot of a H&S neckline (red, dashed) that would target 2014.  I’m not expecting it to play out, but TPTB could pick any day to quiet the criticism of the never-ending rally.  Today is as good as any.