Last time we updated the oil charts was about a month ago [see: Oct 14 update], at which time it looked like crude light was heading for the .618 Fib at 64.38, with a potential bounce at the .500 at 74.02. Well… today, CL reached 74.07.
Now that the market is closed, and the news is that Halliburton is purchasing Baker Hughes, that bounce is looking like a good possibility.
However, the better target remains the .618 at 64.38, as the chart below shows.
More overnight ramping on USDJPY and NKD, but softness in the past few hours. As we expected, NKD held the yellow .886 and is treating it as a backtest.
USDJPY is nearing two key Fib levels: the purple .886 at 118.59 and the white .618 at 120.11. 
ES and SPX each completed a small IH&S indicating further gains. While, the best choice for any significant pullback remains the former highs.
SPX shows the dashed red TL that has connected all recent highs could be an impediment to the IH&S playing out in the immediate future. The solution? New highs in USDJPY and NKD courtesy of the scuttled Japanese tax hike being heavily rumored.
A better look at the TL:
UPDATE: 10:25 AM
IH&S almost complete, getting big boosts from VIX, NKD and USDJPY. Note: for many months now, SPX has frequently stopped just short of pattern objectives, leaving an argument for further upside on the following day. As always, keep an eye on the real drivers of this market: USDJPY and NKD.
Because, in those instances when SPX doesn’t stop short, USDJPY/NKD are usually smashed higher in an effort to leapfrog natural points of resistance (e.g. Oct 31.)
UPDATE: 1:05 PM
The IH&S stopped short as we suspected it would. Now, we’re seeing the reversal, that should complete a traditional H&S that points to the SMA10.
UPDATE: 2:00
SPX got most of the way there. We should see another leg down to either today’s SMA10 (2028.25) or yesterday’s (2024.25.) A reminder: the previous high we’ve been targeting is at 2019.26. It would make for a good intraday overshoot.
UPDATE: 3:20 PM
USDJPY to the rescue. Note that USDJPY (thin purple line) reversed off a TL (the red arrow) at the same time SPX was vacillating between continuing to fall within or breaking out of the narrow red channel. VIX was monkey-hammered at the same time, and that was that.
SPX is back above the neckline, where it is likely to close unless VIX can get a good bounce off 13.80 (top of falling white channel.) ES VWAP is at 2036.75, so we’re likely to finish there unless there’s a power outage in algo-land.
Update EOD:
ES closed @ 2036.50. Nice job, guys. Thank goodness the market isn’t rigged.
USDJPY reached the 2.618 Fib yesterday and has since settled back to the 1.618. There is support at 114.20, and the upside potential remains the yellow .886 at 118.59.
ES broke a week-old rising wedge overnight, so I believe yesterday’s call for a revisit of the previous high (and SMA10) of 2019.26 remains the most likely downside case, with 1996.62 as the next major support. As to the upside, I still have my eye on 2138 — the 1.618 extension of the drop from 1576 to 666 between 2007 and 2009.
Keep an eye on NKD, which overshot our upside target just enough to make a new high last night. It has since retraced to the .886, suggesting it will treat this strong Fib resistance as support going forward.
GLTA.
SPX is coming up on the trend line connecting the index’s previous highs. This TL has been respected in the past, but there is also a tradition of important TL’s being leapfrogged on low-volume holidays. Today should be very low volume.
The daily chart shows the abject lack of meaningful pullbacks since the 1820 lows — particularly since USDJPY’s moon shot higher. The SMA10 should reach the Sep 19 2019 high tomorrow — perhaps time for a token pullback?
As we expected, the US dollar’s reaction to the red 1.618 extension appears to be yielding to a run for the larger scale purple .886. 
DX and SPX don’t always march in lock step, but lately they have. So, a reaction at the .886 should incite a reaction for SPX as well. If TPTB don’t use today as an opportunity to hop the TL discussed above, perhaps we’ll see the two events in sync.
USDJPY continues to race higher, topping 116 with the .886 just ahead at 118.59. Reuters re-published an article from this weekend speculating that Abe planned to delay the sales tax increase slated for next October.
The big picture:
Needless to say, this enabled the Nikkei to reach our upside target range posted on Nov 6. As is often the case, the rally was halted just short of the .886, meaning there is room for another spurt higher while still respecting the yellow .886 retracement (of the drop from 18,700 in Jul 07 to 7,325 in Oct 08.)
Should the Nikkei’s .886, the USDJPY’s .886, the DX’s .886 and SPX/ES TL all function as they normally have, we should get a meaningful downturn in the next 24 hours or so. But, of course, the S.S. Normal sailed a long, long time ago.
GLTA.
Few financial assets engender as much debate as gold. Depending on whom you believe, gold is either about to double in price or drop by half. Many believe the price has been highly manipulated — an argument I wouldn’t even begin to dispute. Given the influence central banks and their proxies have exerted over other financial assets, I’d be shocked to learn that gold was, somehow, left out of the mix.
With that caveat, I still think it’s instructive to check in on the charts once in a while. If for no other reason, they can provide some hints as to the plans of The Powers That Be — assuming they have a plan and aren’t just winging it.
Those with a better memory than mine might remember we first talked in April 2013 [see: Apr 15, 2013 Update] about the 1155 target should the red channel bottom fail to hold.
It didn’t. We went with the broader, alternate rising channel shown below in white and saw three pronounced bounces at horizontal support just above 1180 in June 2013, December 2013 and Oct 2014. That support finally broke down on Oct 31.
GC dropped below the red, dashed trend line of support, and is currently in the process of backtesting it.
As stocks have repeatedly demonstrated, losing important, long-term support isn’t necessarily the kiss of death. A timely aside by a Fed president can work wonders. But, ordinarily, a failure to retake the broken TL would indicate lower prices to come.
So, I was surprised to see that Merrill Lynch’s McNeil Curry just called a bottom on gold. Setting aside Curry’s arguments that the wave count, candle pattern and open interest are bulIish, I would readily admit that the extent of fiat creation supports the idea of a inflation-driven reversal — as does the long-term channel (I also like the idea of our 1155 Fib holding.)
Channels like this can tricky. A slight tilt one way or the other can make a world of difference in a chart that dates back 15+ years. In this case, I’ll give more credence to the upside if/when the red trend line of support (now resistance) is breached.
Regarding inflation, the Fed’s all-you-can-eat approach to economic stability has spiked the money supply — but not velocity. Prevailing wisdom is that all that cash is going to banks and corporate coffers where it is bedding down for the long, cold winters to come.
If deflation is more of a threat than inflation at this point, the impetus for increasing prices would most likely be a rise in political/military conflicts, an inflationary shock (e.g. oil) or a financial development precipitating a flight to safety.
IMO, these risks are as significant as ever. Though, lately, stock prices have brushed them aside in a seemingly boundless central bank and algorithm-fueled melt-up. So, should we expect gold to be any more susceptible?
If TPTB meant gold prices to rebound from 1180 yet again, one would think they would have left the net in place at that level. Simply put, it’s a lot more work to overcome resistance than to observe support.
In addition, gold and equity prices have been negatively correlated lately. If stocks are to continue rising (as central bankers everywhere are clearly hoping inciting), we should expect continued weakness in gold. If for no other reason, they can point to it as justification for more inflation-stoking QE.
Bottom line: if you’re burying bullion in the back yard, you probably couldn’t care less about the day-to-day swings in the financial markets. But, if you’re a trader, keep an eye on that trend line around 1180 — gold’s line in the sand.
If 1155 holds and gold can push through 1180, then it has significant upside to 1300 or so — the .786 Fib and a TL off the highs dating back to May 2013. If not, the next real support doesn’t come in until 947.
Should be a low-volume day, today. USDJPY is resetting, with no knock-on effect on ES.
While, the Nikkei has completed a descending triangle — normally a bullish setup pattern.
It’ll be telling to see if it acts as such here, as NKD is technically still reacting to the yellow .886 Fib. NKD is one of the most heavily manipulated indices (I know, it’s redundant) around. So, any kind of drop here would offer some hints as to the script for the markets going forward.
One development worth watching: the US dollar. DX reacted at a smaller scale 1.618 Fib extension.
But, it didn’t quite reach the much larger scale .886. So, another surge isn’t off the table. And, such surges have been bullish for stocks lately. To further complicate matters, DX popped up through the falling red dashed trend line connecting the ’04, ’09 and ’10 tops — but not the rising purple TL connecting the ’11 and ’12 tops.
I’ll be watching DX and NKD especially closely today.
GLTA.
SPX came withing 0.61 of closing the gap we were watching Tuesday before the downtick prevention team screamed into action.
Since then, it’s been a steady march higher — with USDJPY/NKD providing most of the boost. NKD is still languishing below the .886 Fib, suggesting more downside ahead. But, the chart pattern indicates a good chance of a breakout to the white .786 or .886 first. I believe TPTB are keeping this card in reserve and will play it in the event of any undesirable downside moves.
USDJPY, likewise, seems stuck at the 2.24 extension, but seems to have found support at the 1618. Like NKD, a breakout is just a key stroke away.
And, that pretty much sums up the markets lately.. We (sometimes) get a burst or two of “honest” market movement in the opening minutes, after which the central planners and their hedge fund lackeys determine which way stocks will go for the rest of the day — with USDJPY, NKD and VIX as their primary tools.
VIX is at a critical support level, the .886 of the rise from 11.52 to 31.06 beginning on Sep 19. It tagged this Fib on Oct 31, and closed slightly below it yesterday. A sustained push below 13.75 would be bullish for stocks.
GLTA.
A link to the webcast of Draghi’s press conference, beginning at 8:30AM EST:
http://www.ecb.europa.eu/press/tvservices/webcast/html/webcast_141106.en.html
As expected, we did have some drama at the .886 Fib, resulting in a pop and drop that was limited to about 6 points by the usual USDJPY/NKD rescue.
For its part, USDJPY reacted at the 1.618 extension as expected, dipping back to the 1.272 before swinging into rescue mode. ES (the thin purple line) had dropped about 12 points from its overnight ramp job highs when USDJPY firmed up and boosted stocks.
NKD initially declined below the important .886 Fib level (in yellow, below.) Stocks did not react well. So, they took it back above the line, suggesting that the correction was done.
Note, however, that it fell back below the .886 overnight (as usual) — plunging 165 points. As long as it remains below 17,068, it suggests further downside. But, because it was propped up north of 16,740, it leaves open the possibility of a rally to the white .786 or .886 (17,322 and 17,396.)
In short, 17,068 is the Japanese line in the sand.
The algos are driving the futures higher with Draghi’s assurances that the (unanimous) ECB is ready and willing to conduct more easing. GLTA.
While the talking heads are focused on the election results, it is Kuroda’s latest antics that have S&P futures up 13 points this morning. Apparently not satisfied with going “all-in”, he emphasized last night that he is more than willing to go all-in’er.
USDJPY shot back through the yellow .786 and nearly reached the 1.618 extension of the drop from Monday’s highs. Consider me sadder but wiser and stopped out on the short USDJPY call.
Given ES’ action, SPX is pointed right at Monday’s highs. I’ll be watching to see if we get some drama around the .886 at 2022.
Interestingly, NKD still hasn’t topped the .618 of its drop from Monday. Keeping the powder dry, or a sign of a pop and drop? We’ll see.
Keep an eye on the futures action after the cash open for some hints as to the strength of this leg higher.
After spiking higher post-Kuroda’s lunacy last week (1300 points on the 31st alone), the Nikkei 225 ran smack dab into the .886 retracement of its crash from 18,365 to 6,990 between July 2007 and Oct 2008.
It reversed as we expected and has since given up 740 points (4.2%.) The eminis have since given up a whopping 1.1%. What gives?
While many tools are used by TPTB to ramp SPX/ES higher throughout the day, NKD is one of the most effective. Today’s reversal at 11:00 AM was classic. First, some background.
ES is more than happy to rise in lock step with NKD when it’s on a tear. And, any time stocks are in danger of declining more than would be acceptable, you can count on NKD and USDJPY to reverse higher (along with VIX reversing lower.)
But, that would leave NKD and USDJPY on a perpetual rise. And, well, people might notice how strange that is — might even question whether it made sense (but, probably not.)
So, after the futures close (4:15 PM NYT), NKD and USDJPY typically go back to where they started. ES, on the other hand, is easily propped up in the after-hours, when volume goes from the normal pathetic to practically non-existent.
The result: a one-way street where stocks get all the gains from NKD, but very little of the pain. And, there you have it: an unrigged market, courtesy of central bankers. Ain’t life grand?
Next time you’re trading along, minding your own business, and your short position suddenly starts taking on water — check NKD. There’s a pretty good chance Kuroda/Yellen/Draghi and their lackeys have decided to:
