Yesterday’s evil plan was going so well… until CL-driven algos snuck in and unwound it all with a very impressive (even for it) ramp job.  We’re left to wonder whether the purple channel might continue to hold, in which case it’s going to be tough for equity bears to make any headway.  Note last night’s usual reset of the day’s ramp.

We discussed this last week.  With DX and CL so strongly negatively correlated now, a bearish move in USDJPY (pair drops due to a stronger yen) results in a relatively weaker dollar, which facilitates CL’s rally, which tends to pull stocks higher.  It’s a recipe for going nowhere fast — a.k.a. “chop.”

Bottom line, industry and OPEC have no interest in playing the HFT/algo game unless it results in higher oil prices — a result the central bankers cannot abide because it would pull the rug out from beneath Japan’s no-inflation meme.  As long as a weaker yen is the basis for the biggest carry trade in the universe, this balance will not be upset.

SPX closed above its SMA100 again…

…as did USDJPY.

It was the perfect model of restraint until CL spiked.  At that point, it felt the need to backtest the falling red channel top again.

We’ve slightly adjusted the channel to reflect the move.  But, the objective remains the same — although delayed by a day.

SPX targets remain the same as well.

continued for members… (more…)

In our January 27 update, we noted that 10-yr yields had backtested a broken channel bottom and appeared poised to fall further.

But, we also charted an important divergence between yields and stocks.

The last four major declines in yields were accompanied by declines in SPX ranging from 10% – 52%.  This one was different:

The decline that began in January 2014 has lasted longer than any since the financial crisis.  And, it’s about the same degree as the average of the others.  Yet, it’s the only one accompanied by an increase in SPX — a whopping 14% increase, at that.

The difference, of course, is the stunning degree to which central banks have openly manipulated interest rates and currencies.  The yen carry trade, in particular, has been the most important factor in stocks’ almost non-stop rally since 2011.  We cover the effects in some detail in the latest posts on an analog we’re watching and will detail the carry trade itself in a coming post.

In the first week of February, rates had again fallen through support at 17.45 and SPX looked likely to complete the correction that had been aborted in mid-December.  But, USDJPY shot up over 2% in 2 days, busting through its SMA10, 20 and 50 and a number of bearish chart patterns.Stocks rebounded sharply, of course, with yet another nonsensical snap-back rally that took SPX to new highs.

But, bonds also thumbed their nose at the usual charting rules.  Yields shot right back through the broken red channel bottom, gaining 60 bps over the next six weeks.  At 22.59, however, they ran into resistance from the falling purple channel top.

Not so coincidentally, USDJPY and oil were also running into channel resistance at the time.  The upshot was a sharp decline for TNX that has since retraced a little over .618 of that spike from 16.51 to 22.59.

There is initial support at last week’s lows, and at 17.20 from both the red .886 and an interior (.236) purple channel line in the next day or two.  The stronger support is white .886 Fib at 15.81.  Due to the above-referenced transgression, TNX missed the opportunity to tag it in early March.

Our current analog calls for another opportunity around April 14, with the very good possibility of an overshoot to 14.90-15.10.

Stay tuned.

For those following along with our analog, today is day 232.  Things appear to be right on track, and our downside targets are unchanged from Monday.

Today’s decline should be led by USDJPY.  The daily chart looks fairly benign, while the 60-min shows the drama has already begun.

The eminis, currently off 4 at 2057, were as low as 2033.50 overnight — but, bounced back when USDJPY sought the refuge of the critical .618 Fib at 120.11.

Stocks should begin a more significant reaction today, but it should be modest compared to the weeks ahead.

continued for members… (more…)