USDJPY bounced at the red midline as we discussed yesterday…
…leaving CL in limbo, but with room to settle back…
…and SPX’s upside targets posted in yesterday’s members section intact. It appears we’re going to reach the first one in the opening push.
UPDATE: 9:35 AM
SPX just tagged our 2112 target. Updated forecast in a moment.
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In January’s major update on VIX, we noted it as approaching support at 15 and was following a fairly bullish path higher (bearish for stocks.) Almost as an afterthought, we included the much lower red target which represented the “what if we’re wrong?” scenario.
This chart, of course, was prior to the discovery of our new analog in March [see: A New Analog] which completely changed our outlook. As fate (more accurately, central bankers and their accomplices) would have it, VIX blew through the support at 15 and nailed the red target instead.
It has since tagged our even lower target set in May (though a little late) and has fleshed out the lower half of the falling white channel we first suggested in March.
Yesterday, it tagged the midline of this falling channel. But, today, it fell back and tagged the .236 line. In a normal, unrigged market, this would mean a bounce higher (to the .786 line — white dot) and a continuation of stocks’ slump — especially in the wake of the recent Big Butterfly Pattern completion and today’s BoJ comments on the yen [see: Did Kuroda Just Kill the Bull Market?]
But, seeing as how this one is anything but unrigged [great example just today], we take this kind of move with a cautious grain of salt.
Stay tuned.
In a stunning example of just how rigged “markets” are, the ECB just announced [full text below] the biggest increase in Greece’s credit line in months. The kicker? It came at precisely the moment when SPX most needed a boost to break out of a falling channel and top its 50-day moving average.
This is what happened — shown on a 1-min chart to make it perfectly clear:
The daily chart we posted yesterday shows how important 2100 was from a technical standpoint. It represented both the top of a pretty well-formed falling channel and the 50-day moving average.
A reversal here, and the next stop is lower — possibly a lot lower according to the charts. A reversal would have been quite detrimental to the bullish meme that folks like Bloomberg are paid quite well to spread.
The risk was elevated because, earlier today, BoJ’s Kuroda announced to the Japanese parliament that he saw no reason for the yen to fall any further.
“The yen is unlikely to weaken further in real effective terms if you think with common sense, given how far it has come,” Kuroda said in parliament Wednesday.
So, it was incredibly important to prove to the investing world that the yen carry trade isn’t that important to rising stock prices — which, of course, is a total crock. [see HERE]
Is it possible that the timing of the announcement was a coincidence, and had nothing to do with the “market’s” need for a breakout? In a rainbow-farting unicorn world, I suppose. But, if you’ve taken the red pill, you know better.
Any doubt should be removed by the release of a second article a few minutes later (might as well go for the 10-day moving average, too) that Germany was to offer Greece a deal on aid as long as they really, really promise to do something this time. Bloomberg, quoting the always reliable “one person”:
To convince creditors that Greece is serious, Tsipras would have to take tangible action, for instance introducing reform legislation in the Greek parliament, one person said. If Greek officials move quickly, funds could be released in early July, the person said.
Updated chart:
Sometimes it really sucks to be right. From this morning’s members’ section, shortly before the breakout:
EURUSD is the one driver that seems to have plenty of upside potential. Of course, it’s swimming upstream given the steady stream of negative news regarding the Greece negotiations.
It goes without saying, but a very positive development (or rumor thereof) is a serious threat to any short position (trade safely, use stops.)
* * * * *
The full text of both Bloomberg articles (and, shame on you, Bloomberg, for being such a tool):
The European Central Bank raised the level of emergency cash available to Greek banks by 2.3 billion euros ($2.6 billion), people familiar with the decision said.
The Governing Council increased the limit on Emergency Liquidity Assistance to 83 billion euros in a telephone conference on Wednesday, the people said, asking not to be named because the discussion was private. That’s the biggest weekly increase since Feb. 18. Governors kept the discounts on the securities pledged as collateral against ELA unchanged, the people said. An ECB spokesman declined to comment.
The ECB is trying to strike a balance between keeping Greek lenders afloat and safeguarding the country’s central bank, which provides the aid, as the government veers toward a debt default. Greek Prime Minister Alexis Tsipras aims to meet German Chancellor Angela Merkel and French President Francois Hollande in Brussels on Wednesday to try to break a deadlock in bailout talks.
The emergency aid is intended to replace deposit outflows from Greek banks amid uncertainty over the country’s future. International talks this week failed to make progress after Greece submitted a budget-deficit plan that creditors considered unfit for purpose, according to two officials directly involved in the process.
Merkel is willing to sit down with the Greek leader if he requests a meeting, government spokeswoman Christiane Wirtz told reporters in Berlin.
“With the risk of a default increasing, and possibly leading to an exit ‘by accident’ from the euro zone, deposit outflows are likely to continue,” Barclays Plc economists Philippe Gudin and Antonio Garcia Pascual said in a client note. “If there is no sufficient progress in the coming weeks and should creditors not officially extend the program ending in June, then we believe in all likelihood the Eurosystem would not be able to continue funding Greek banks under the same terms.”
The total level of available ELA has risen by more than 23 billion euros since February, when the ECB locked Greek banks out of regular refinancing operations. The Governing Council reviews the amount weekly and can restrict the funding. It also has the power to insist on higher discounts on the collateral banks post to receive the cash.
“We look each week at these issues of bank solvency and collateral quality and as long as these are in place I don’t think there is a basis for taking a different decision,” ECB Governing Council member Ardo Hansson told reporters in Tallinn on Wednesday. “If things change — the quality of the collateral, for instance, or the outlook for Greek govt debt sustainability — then you factor those in and reassess.”
* * * * *
Chancellor Angela Merkel’s government may be satisfied with Greece committing to at least one economic reform sought by creditors to open the door to bailout funds, according to two people familiar with Germany’s position.
While the Germans still insist on a package of steps that includes higher taxes, state asset sales and less generous retirement benefits, they may settle for a clear commitment by the Greek government to a measure up front to unlock aid, said the people, who asked not to be identified discussing the government’s negotiating stance.
With Greece’s aid program set to expire on June 30 and no deal in sight, the comments reflect more German flexibility than the government’s public statements. Merkel and French President Francois Hollande may hold talks with Greek Prime Minister Alexis Tsipras on the sidelines of a European Union summit on Wednesday to try to break the impasse.
Merkel says Greece must honor an accord struck with its euro-area partners in February that gave Tsipras an extra four months to carry out economic reforms needed to unlock its final aid installment of 7.2 billion euros ($7.6 billion). The chancellor hasn’t spelled out details of a possible deal in public and said that whatever measures Tsipras undertakes, they have to “add up” to make Greece’s debt load sustainable.
While Tsipras could be given until next year to carry out changes, such as trimming retirement benefits, he would have to initiate at least one major overhaul if he wants to get aid flowing, the people said. Neither person specified which demand Greece should fulfill.
Merkel’s chief spokesman, Steffen Seibert, and his deputy Christiane Wirtz didn’t return text messages seeking comment. A German Finance Ministry spokeswoman declined to comment.
To convince creditors that Greece is serious, Tsipras would have to take tangible action, for instance introducing reform legislation in the Greek parliament, one person said. If Greek officials move quickly, funds could be released in early July, the person said.
Germany also wouldn’t object to extending the aid program again if Tsipras presents specific policies to meet the goals of the memorandum of understanding agreed with Greece’s euro-area partners on Feb. 20, the people said. They didn’t say how long such an extension might run.
Last night, while the S&P e-minis were ramping on the basis of nothing whatsoever, Bank of Japan head Haruhiko Kuroda spoke to the Japanese Parliament:
“The yen is unlikely to weaken further in real effective terms if you think with common sense, given how far it has come,” Kuroda said in parliament Wednesday.
While the FX world argues his intentions (and the uncharacteristic injection of “common sense” into the equation!) USDJPY is tanking — this, after reaching our upside target last Friday.
While he has no intention of paring back QQE at this time, and still insists there are no asset bubbles in Japan, the yen carry trade has been the single biggest driver of stock prices since late 2011 [read more HERE.]
Look for a sharp rally in oil and the euro in order to mitigate the effects. But, if the yen carry trade unwinds, the “markets” are pretty much screwed.
This changes our upside target for this bounce.
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Yesterday, SPX tagged our next downside target [added on May 29] and even put in the overshoot we discussed.
From Friday’s post Bad Good News:
Assuming (as we do) that USDJPY runs out of steam at 125.72 and CL bounces back at 57.09 or so and TNX tops out at 24.38, SPX should have little trouble tagging our next downside target at 2082ish, with an overshoot a distinct possibility.
USDJPY is clinging to the rising TL from May 27, but is showing signs of weakness after reaching our upside target last Friday.
This puts the onus on CL, which is…ahem…rising to the challenge.
As long as CL and USDJPY mind their manners, I see no reason to change yesterday’s forecast.
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Friday saw SPX come within 2 points of our next downside target [added on May 29] before the algos kicked in. 
From Friday’s post Bad Good News:
Assuming (as we do) that USDJPY runs out of steam at 125.72 and CL bounces back at 57.09 or so and TNX tops out at 24.38, SPX should have little trouble tagging our next downside target at 2082ish, with an overshoot a distinct possibility.
USDJPY ran out of steam at 125.67, CL bottomed at 56.83, and TNX topped out at 24.24. So, everything went pretty much according to play, except for the timing and strength of CL’s bounce: 4.2% in a day!
That’s the trouble with market manipulation: some participants either don’t get the memo, or don’t feel like waiting for the signal.
It’s selling off this morning, leaving us to wonder whether the downside is really over for now.
continued for members…
Hard to say, as the eminis did reach their .618 retrace from earlier in the month.
And, DX is selling off this morning — even as CL is showing weakness.
But, USDJPY is finally reversing at the 1.618 — our next upside target. 
So, my best guess is that TPTB would like a more solid touch of the rising channels/TLs on SPX, and that we’ll see SPX bag 2083 before it’s all over.
UPDATE: 10:00 AM
Quick update of the daily charts. First, note that the SMA10 (red) has crossed the SMA20 (white) — almost always at least a short-term bearish development. But, it’s happened many times before and still, the SMA100 (yellow) provided strong support.
Now that the SMA200 (thick red line) has climbed above the March lows, I think there’s a decent chance of SPX reaching it. As we’ve noted before, a reversal at the red .786 would set up a drop to the red 1.272 at 2049.76 — which is exactly where the SMA200 should be in the next week or so. It also happens to coincide with the peach .886.
So, we’ll make 2050 our next major downside target for now. Note, from the bigger chart, that there is much more potential downside should support not hold.
To get to 2050 would require a break in TL/channel support. So, I hesitate to consider it “likely.” For now, we’ll just call it a likely target should the support at the SMA100 not hold. Here’s the updated daily chart:
I still believe the USDJPY will backtest the yellow .618 at 120.11 about the time its SMA200 reaches that price level. For now, it appears to intersect in late July. Our analog calls for a tag on Jul 29 — hence the yellow target.
For USDJPY to fall that far would surely ding stocks pretty much. So, a drop to SPX 2050 might not be all that farfetched. I’ll try to get some updated charts for our analog posted this afternoon.
Note: having seen countless instances of full recoveries and new highs after the SMA100 tag, I’d also be very open to the idea of SPX hanging on to the purple channel whose bottom it just tagged.
While I’d like to think the SMA200 could get tagged, TPTB have proven quite adept at pushing SPX up through resistance. With a Greece “fix”, another BOJ expansion, etc. anything is possible.
UPDATE: 1:15 PM
SPX has tagged the SMA100, reaching 2081.92. If our mid-term forecast is correct, we should see a strong rebound very soon. Initial target 2091 with a secondary target of 2100. Certainly worth a shot…
UPDATE: 2:39 PM
The memo: http://www.wsj.com/articles/greece-creditors-consider-extending-eurozone-bailout-until-march-1433788055
BRUSSELS—Greece’s international creditors have suggested extending the country’s bailout program until the end of March 2016, but disagreements over the conditions attached to the continued support and what would happen afterward risk undermining that plan, three people familiar with the negotiations said Monday.
The eurozone’s portion of Greece’s €245 billion ($272 billion) rescue program runs out at the end of June, which has raised questions over how Athens will pay its debt beyond this month and remain in Europe’s currency union. To ensure that Greece doesn’t run out of money until the end of March, it would get access to some €10.9 billion that had been set aside under its old bailout for recapitalizing weak banks, the people said.
“What we offered would mean that Greece is fully financed until March 2016,” said one person, referring to a meeting last week between European Commission President Jean-Claude Juncker, Greek Prime Minister Alexis Tsipras and Jeroen Dijsselbloem, the Dutch finance minister who represents eurozone governments in the talks.
At that meeting, Messrs. Juncker and Dijsselbloem offered the extension and the extra funding in return for Greece implementing policy overhauls as well as pension cuts and tax increases, the people said. But Mr. Tsipras rejected those terms as “unacceptable.”
Failure to reach a deal on the conditions attached to new aid now risks undermining the deal offered at Wednesday’s meeting, one of the people said. “Every additional day of capital outflows [from Greece’s banks] means less money can be taken from the [bank recapitalization fund and used to repay debt] and instead has to be used to stabilize the banks,” this person said.
Another factor holding up a deal is what would happen after March. One of the people said that Greece insists it doesn’t want a third bailout program—which many creditor representatives believe is necessary—and doesn’t want to follow spending conditions laid out by its creditors beyond March.
Yesterday, SPX nailed our downside target from May 26 — a drop from 2134.72 to 2093.44. It was a whopping 1.93% — though, from all the excitement, you’d think the “market” was crashing. That’s what happens when investors come to expect uninterrupted daily gains.
With this morning’s better than expected jobs report, investors are once again being reminded that their success has come courtesy of central bankers. And, if employment looks especially rosy, how much longer will the Fed keep rates in the cellar? [hint: a long, long time.]
Our targets are being hit left and right — some in reaction to the “bad” good news — others in an attempt to mitigate its effects. USDJPY just tagged the white 1.618 we discussed yesterday…
…and, CL reversed after slightly overshooting our downside target at 57.59 (even after OPEC members voted to maintain current production levels.)
TNX slightly overshot the white channel midline — but, ran right into the red channel midline.
I have to be away from the office for a few hours this morning, so I’ll dispense with the members’ section today. Assuming (as we do) that USDJPY runs out of steam at 125.72 and CL bounces back at 57.09 or so and TNX tops out at 24.38, SPX should have little trouble tagging our next downside target at 2082ish, with an overshoot a distinct possibility.
Note this is the SMA100, which has provided strong support over the past many months. Of course, that was before completion of the Last Big Butterfly Pattern.
We posited yesterday that after over a year of constant bond market manipulation (the latest instance), TPTB had broken the link between lower interest rates and lower stock prices. It was a strong positive correlation that we wrote about quite some time ago in forecasting a stock market correction (that obviously never happened.)
That correlation worked both ways insofar as rising interest rates were often (but, not always) a sign of a recovering economy and, hence, stock market rally. The correlation broke down altogether in early 2014 when interest rates fell, but stocks continued soaring.
We wondered whether it would, thus, be difficult to reestablish the correlation (or, at least the perception thereof) in the event that rates started rising. There are about 18 trillion reasons to think it just might be a challenge.
As even former Fed presidents have admitted, a return to normal interest rates is not an option — not with $18 trillion nominal in federal debt outstanding. We might be able to manage as long as the FOMC buys all the bonds in sight, keeping interest rates below 2-3%. But, a return to the long-term 10-yr note average of 6% would surely bankrupt the US. Japan and the eurozone would be right there with us.
Janet Yellen keeps talking higher interest rates because there’s this illusion that higher rates are evidence of a healthy economy. But, with this much debt outstanding, higher rates would mean impending disaster.
With that cheery thought, we present a simplified daily chart — showing that 10-yr note yields have tested and been rejected by the midline of the 20-year old falling white channel.
As Lawrence Lindsey ominously states in the above-reference discussion:
“…the Fed has almost no credibility when it comes to a sense that they will be able to stay on top of this ticking monetary bomb.”
With SPX reaching our next downside target [Charts I’m Watching: May 26] earlier today, we can’t help but agree. For today’s updated equity forecast, see: Unintended Consequences.
We posited yesterday that after over a year of constant bond market manipulation (the latest instance), TPTB had broken the link between lower interest rates and lower stock prices. It was a strong positive correlation that we wrote about quite some time ago in forecasting a stock market correction (that obviously never happened.)
That correlation worked both ways insofar as rising interest rates were often (but, not always) a sign of a recovering economy and, hence, stock market rally. The correlation broke down altogether in early 2014 when interest rates fell, but stocks continued soaring.
We wondered whether it would, thus, be difficult to reestablish the correlation (or, at least the perception thereof) in the event that rates continue to rise (and, bond prices fall.) The past two weeks have suggested it might just be.
Yesterday’s call to short SPX at 2121 worked out well, and — with the eminis currently off 10 points — our downside targets are looking better by the minute. Factors?
China broke down again — and, recovered again — overnight. 
While, CL is again faltering. The rising wedge that became the rising red channel is now a broken channel, and CL is solidly back in the month-old falling white channel (though the rising purple channel bottom isn’t far below at 57.59ish.
The only question is whether USDJPY will get another stock-saving bounce off the red trend line (neckline?) that’s prevented a more serious sell-off over the past week.
Updated SPX charts in a moment…
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Yesterday’s initial equity sell off was abruptly arrested by the usual CL, USDJPY and EURUSD ramp jobs — but with a couple of twists, which we’ll get to in a moment.
USDJPY sold off initially, but was propped up at a minor TL — which was enough given the expectation of a corrective retrenchment that would normally follow an uninterrupted rally from the bottom of a channel to its .786 line.
CL set up a bullish rising wedge, which it promptly bailed on after “markets” closed. It has since transformed that broken wedge into a bullish rising channel — coincidentally just in time for this morning’s open.
As of yesterday’s high, CL had risen about 9% in three days — all in order to drive algos that produce higher stock prices.
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