For those not on our distribution list, note that our membership promotion is officially under way. Click HERE for details on how to save over 50% on an annual membership that protects you against future price increases.

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Yesterday’s post title was a little tongue-in-cheek, as capitulation is normally thought of as a massive downward whoosh where the last remaining bulls panic and join the herd rushing for the exits.

In this case, I was thinking of the Bank of Japan, which is the key to this “market’s” recovery.  As we’ve maintained for the past six months, the yen carry trade has provided nearly all of the upside since 2011.  And, since USDJPY flat-lined last December, stocks have gone nowhere.

There’s a natural reticence on the part of the BoJ to further devalue the yen. It’s producing inflation (food and energy, which are not counted) but zero growth.  Even Abe’s closest advisor admitted last night that QQE has been an utter failure.  This was right before he went on to recommend expanding QQE.  From the Financial Times:

Japan needs more economic stimulus to stave off a serious shock from China, according to one of Prime Minister Shinzo Abe’s closest advisers.

Etsuro Honda, an architect of Abenomics in his role as special adviser to Mr Abe, said passing a supplementary budget to boost the stagnant economy was an “urgent task”.

“I don’t think we should call it a technical recession yet, but generally speaking, the Japanese economy is in a static situation,” Mr Honda said in an interview with the Financial Times. “It is not growing positively.”

As we discussed last month in Japan’s Equity Trap, Japan has no options other than expanding QQE.

They have amassed too much leverage, and used much of that leverage to accumulate ¥80 trillion in stocks — essentially on margin.  They are unwilling to write off those losses, so must do whatever they can to recoup them.

As the Nikkei reached our target zone yesterday [see: Update on NKD] the BoJ and GPIF were collectively sitting on losses of approximately $150 billion — about 3% of Japan’s GDP.

At yesterday’s low, NKD was testing the midline of a channel that goes all the way back to Aug 2010.  Each and every leg up has been driven by yen debasement or BoJ stock purchases.  Should it fail, it’s a long way down.That’s a big incentive to act, and to act quickly before things get even worse. The BoJ has a Monetary Policy Meeting next Tuesday and Wednesday, and another on October 30.  What will it take for them to pull the trigger?

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Welcome to our new Membership Sale!

This has become something of a tradition for pebblewriter.com.  We’ve done a few of them now, and they have proven very popular with both new and returning members.  It’ll run for the next few days.  The terms are pretty straightforward:

Ready to sign up?  Click HERE.

What’s New

This last feature is new.  Charter annual members will receive a free technical analysis report on the stock of their choice.  It will consist of 2-3 pages of charts and commentary, including 20-yr, 5-7 year and 1-year charts as well as a forecast for both bullish and bearish scenarios.  This same service will be rolled out to existing members in mid-October.

Lots of folks have a sizable position in certain stocks — the company where they work or used to work — and can benefit from knowing what the charts indicate about the future.  As always, no guarantees.  But, I’ll give you a couple hours of my best thoughts on the matter.

I’m also offering the same service as a stand-alone option to prospective members.  It will be coupled with a one-month trial membership — something folks inquire about almost every day.  The cost is $249, which is about $0.25/share on a 1,000 share position.

Help Me Help You

One other note: I do no advertising on pebblewriter.com.  There are no banner or pop-up ads.  I don’t sell or rent your email address or any other information to third parties.  I hate that kind of stuff, and assume you do, too.

So, I rely on current members to bring in new members. That’s why I offer great incentives to refer friends and business associates to the site ($300 each during this promotion.)  In fact, if every member brought in a new one, we could probably discontinue these promotions!

If you enjoy the site, please spread the word.  It will benefit you directly (the $300!) and probably even more indirectly.  The closer I get to my membership goal, the more bells and whistles I can offer all of you.

What I hope you won’t do is screen-grab charts and commentary and share them, or your log-in information, with non-members.  It only dilutes the value of your membership, as I spend a good 30-minutes/day unlocking folks’ accounts when they share with non-members “just this once.”

What’s Next

Back to bells and whistles: my wish list includes an administrator, improved web design, live conference calls, videos, etc.  These are all things that cost time and money, but are easily attainable as our membership grows.

I’m currently about 1/3 of the way towards my membership goal (a closely-guarded number that’s strongly correlated with my three daughters’ college and wedding plans.)  It doesn’t really compare to what I could make by returning to Wall St., but I like working for all of you instead of “the machine.”

Most of you have probably noticed our rates are increasing monthly.  This is according to plan, which calls for an annual rate of $2,500 by Jan 1.  And, I’ll probably discontinue offering monthly, quarterly or semi-annual subscriptions unless I get an administrator on board.  So, if you or someone you know is thinking about a membership, this would be an excellent time to take action.

Thanks!

Last, thanks for all of your support.  These last few months have been ridiculously volatile and seemingly without direction.  Please believe me when I say it’s as bothersome for me as it is for you.  While the volatility has generated some really great results, it’s just plain tiring.  And, those of you who can’t stare at your computer all day long often miss out on some attractive opportunities.

Ever since USDJPY (the primary engine for higher prices) topped out in December, stocks have been whipsawed incessantly.  It’s hard to say what, exactly, the BoJ is going to do.  But, it shouldn’t be too much longer.  At that point, I expect to be able to focus more on trending prices and less on intra-day swings.

Sign Me Up!

Yesterday, SPX ran all the way down to tag our lowest target, producing some great numbers (3%+) on the day.  But, the close presented a challenge that I finally addressed with the following:

FWIW, USDJPY appears likely to tag the bottom of its triangle tomorrow or overnight.  Would not be at all surprised if it does so overnight in order to allow NKD to reach 17092, followed by a bounce before tomorrow’s opening that traps today’s overeager bears.

It’s exactly what happened last night.  As we noted in the Update on the Nikkei 225 late last night, NKD tagged the next lower target that we’ve been tracking for the past several weeks.

This was accomplished by USDJPY tagging the bottom of its triangle yet again.And, now we’re facing a small gap up that has bears who held short overnight a little nervous.  Should they be?

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NKD just tagged our two next lower targets and is closing in on the third.  As we discussed back on Sep 10 [see: Sep 10 Update on Nikkei], this latest leg lower is seen as necessary to prommpting a further expansion of QQE and/or debasement of USDJPY.

It’s pretty clear that NKD’s price action has been as heavily manipulated influenced as any index.  But, in this case, another leg lower would make perfect charting sense.  It would also fit in nicely with the idea of compelling the BoJ to further expand QQE.

We expanded the target range to include not only the ,886 retracement of the rise from 16525, but the .618 of 14400 to 20990 and the 1.618 of the bounce from 18450 as well (the Fib numbers have changed a bit with the roll to the next contract month.)

Now, with NKD finally reaching the target range, we have to figure out “where to” from here; and, will it be enough to get the BoJ off the dime?

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Note: for those wondering, ThinkorSwim did a major update over the weekend — which means that our color scheme options were changed.  I’m trying this one out today — but, the jury is still out.

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USDJPY toyed around with breaking out of its triangle on Friday (purple lines below), but ultimately failed when it ran into the SMA200 — leading to a nice pop and drop opportunity we discussed early in the morning.

Note that it’s still being constrained by the SMA200 — which means SPX might not go anywhere after this morning’s initial pop.

SPX gained 20 points in the first half of the session, only to give back 30.  Now that USDJPY has retested the .618 at 120.11, we’re left to wonder how long it’ll take before it breaks out for real.

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The last time I updated our gold charts [see: Update on Gold, Jul 24, 2015] I noted that it looked like a good buying opportunity.

For those who are interested, however, it’s worth noting that GC just tagged that yellow .500 Fib level and the bottom of a fairly well-formed channel at 1072.3 that could mean a significant bounce. The initial target would be the neckline (1140) of the just-completed H&S Pattern (that targets 970.)  If things really got going, 1285 looks mighty interesting.

As luck would have it, that was the bottom.  GC spiked to 1140 within a month, a nifty 6.4% gain. At that point, it had backtested the bearish H&S Pattern that targeted 970.  It could have fallen pretty dramatically at that point.But, it didn’t.  It rose to tag a trend line (dashed, purple line) off the January highs before dropping back below that neckline.  Surely, at that point it would have continued on down to establish new lows.

But…it didn’t.  It made its way back up to tag that very same TL all over again this past Thursday — where it reversed yet again.  After five tags and five reversals, maybe that TL is telling us something.

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NKD finally tagged our next downside target yesterday, enjoying a huge 5.3% bounce afterwards.It was made possible by USDJPY.  It’s been a month since USDJPY began forming the triangle that has whipsawed markets on a daily basis.  Yesterday, after the US close, it broke out. But, it’s not out of the woods just yet.

Note that it’s still being constrained by the SMA200 — which means SPX might not go anywhere after this morning’s initial pop.

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As the byproduct of mystical companies with make-believe accounting, the XLF is rarely worth charting.  But, it’s been a few months, and we’ve had some interesting things happen.  When we last posted on Jun 30 [see: Update on XLF], with XLF at 24.38, I forecast three key price levels: 23.88, 25.82 and 22.01.   Noting that XLF had just broken down (again) through a key trend line, I wrote:

Will it bounce right back as though nothing happened, or will this plunge leave a mark?

As it turned out, XLF came within 0.24 of the 23.88 target, bounced right back through the previously-mentioned trend line to within .20 of the 25.82 target, and, finally, opened within .18 of the 22.01 target (on the day that it dropped over 21% in the opening hour — further evidence that XLF is a silly thing to chart.)

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I don’t chart NDX very often.  In my opinion, it’s one of the most manipulated indices. It constantly breaks patterns, almost always in a bullish fashion  So, I was surprised in late August when it plunged to a very reasonable and predictable level.  My cynicism was validated, however, by its subsequent recovery.

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USDJPY’s triangle continues to punish stocks, alternating between bruising sell-offs and warm embraces.  Futures are off about 16 at the moment — but, are just getting started.

But, it’s NKD that continues to draw my focus.  It broke through the TL of support from previous lows and is closing in on our target from two weeks ago [see: Update on Nikkei, Sep 10, 2015.]

I don’t know whether the BoJ is one of the cloaked paddlers or one of the ones grabbing their ankles.  But, either way, NKD is the target of this particular hazing.  At some point, TJPTB (The Japanese Powers That Be) is bound to cry oji!

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