Yesterday’s USDJPY recovery above the key Fib at 120.11 was good for 48 points on SPX.  So, it stands to reason that today’s USDJPY pop above the SMA200 should be good for more of the same.

Abe announced a 3.3% corporate income tax rate cut to take effect sometime next year (and, he’ll respect them in the morning) which, coupled with USDJPY topping the SMA200, was good for an 800-pt gain in the Nikkei futures.

While the price action is in keeping with our analog, we have to wonder what could prompt another leg up?continued for members…

It’s pretty clear that NKD is testing the falling white channel midline, and has a long ways to go to regain the broken H&S neckline at 19,240.

SPX looks likely to reach the purple .886 at 1983.17 — also the bottom of the original falling gray channel which, truth be told, was a far better channel than the expanded red one ever was.Here’s a peek at the bigger picture.Should 1983.17 be topped, the next most appealing upside target is the SMA20, currently around 1999.26.  There’s a .500 Fib nearby at 2000.87, so we’ll call that the secondary target.

As usual, it largely depends on USDJPY, and whether or not it can/will hold the SMA200.  At this point, it’s still going strong.  It has retraced .786 and is aiming for .886 of the drop from 121.708 on Aug 29.  Several charts follow:

The steep rising yellow channel won’t hold of course.  But, it should hold long enough to get SPX where it’s going.

UPDATE:  9:35 AM

The initial push has taken SPX beyond 1983.17, but  — like ES — stopped short of the Aug 28 high.  We should get a pullback to at least backtest the gray channel bottom/.886 somewhere in here, but TPTB should defend 1980 pretty strenuously.UPDATE:  9:49 AM

That’s a pretty good backtest of the gray channel bottom here at 1980.91.  I’d be comfortable going long again at these levels with tight stops.  If it slips further, the next support is the .786 at 1974.13, followed by the yellow .382 at 1969.28.UPDATE:  10:05 AM

SPX slipping below the gray channel bottom, next stop should be 1974.13, then 1969.28 and finally, the red channel midline around 1965ish.  At some point, USDJPY should backtest the SMA200, which should be when SPX stops sliding.  UPDATE:  11:00 AM

SPX has reached the .382 at 1969.28.  Should see that bounce here, though stops are still in order in case the red midline is the ultimate objective. USDJPY still hasn’t backtested the SMA200, but my guess is that it won’t until the SMA100 or 200 (5-min) catches up with the daily SMA200 — which could be hours from now.UPDATE: 11:45 AM

SPX just pushed through and backtested the .382 at 1969.28.  If this support doesn’t hold, then the red midline at 1965 is up next, followed by the purple .618 at 1958.94 around 2pm.Note that previous dips below the SMA50 (5-min) have held, so I’d not get too worried about this one.  Yet, USDJPY’s SMA200 has still not been backtested. Could have done it a couple of hours ago with little impact; now, it might have to wait until the end of the day.  The bottom of the rising wedge crosses the SMA200 around 13:45 ET, though the earlier option is when the 5-min SMA100 crosses 120.79.UPDATE:  12:37 PM

SPX has bounced back to the .786, staying ahead of the SMA50.  It will have trouble making any further headway unless USDJPY breaks out, which is unlikely at this point.  More likely it’ll go sideways until the close, when the 5-min SMA200 reached the daily SMA200.  After hours, USDJPY can crater all it wants without ES necessarily following along.Bottom line, don’t expect more upside today.  And, depending on how artfully the SMA200 backtest is executed, we could easily see more of a sell-off from here.

I’d be inclined to take profits here or, for nimble traders, consider shorting and see if it can’t get down to the red channel midline or that purple .618 at 1958.94.

Just know that it might not be much downside at all, and it could be limited to that .382 at 1969.28 by a sudden blip higher by USDJPY or even CL.

CL is still positioned in a rising channel and could easily return to the white midline or higher over the next few days to help the cause.  The SMA200 will reach the purple .618 in another week or so, making a really nice target of 54.45.UPDATE:  1:40 PM

SPX has reached our next downside target of the red channel midline.  It could bounce here, but 1958.94 is the better target.   Though, be aware that yesterday’s initial wave higher topped at 1960.75.  Wavers might consider a dip below there problematic.Still no backtest of any kind for USDJPY.  But, it has a golden opportunity to bounce at the TL/SMA200 intersection in the next 10-15 minutes — which should coincide with SMA’s tag of 1958.94.UPDATE:  1:53 PM

That’s probably close enough.  I’d be long again here at 1959.73.Probably leaving a little on the table, as the channel line is closer to 1958.40.  But, USDJPY just tagged its 5-min SMA100, and should get a bounce even if it’s not all the way back to the SMA200 (though it would be smarter to get the SMA200 while it’s here.)

UPDATE:  2:00 PM

Finally!  USDJPY’s SMA200, tagged and bagged.  SPX should be free to rebound at this point, with a more solid tag on that channel line.Note that the 5-min SMA200 is below at the purple .500 (1948.28.)  Should USDJPY not react here at its SMA200, then that would be our next downside target.  Assuming USDJPY bounces here, though, I’d want to be long.

UPDATE:  2:42 PM

Well…the bounce didn’t last.  USDJPY continues slumping, and SPX is following right along.  So, the next downside targets are on deck: the SMA200 at 1949.87 and the Fib .500 just below at 1948.28.  USDJPY might be aiming for the red .618 at 120.51, or the yellow channel line at 120.35.  Stay tuned.It’s worth pointing out that SPX’s daily SMA10 is currently around 1954.74 – up 8 points from yesterday’s close.  SPX could reverse anywhere in here and count it as tagged.  But, remember, it won’t reverse at any price until USDJPY stops dropping.

UPDATE:  3:06 PM

Nice reversal up to the broken channel line.  If it pushes through, we’ll consider it a recovery and hold long.  If not, it’s just a backtest that’s likely to drop further into the close.USDJPY has come back to life and is making lots of headway.  It’ll run into resistance, though, at the 5-min SMA200 around 120.68.  It would typically push through and close at strength, so there’s either more downside coming (SPX 1950?) or this is a pretty convincing headfake.

Bigger picture:Note that CL has dropped below its recent lows — not a great development for bulls.  Remember, we were looking for 42.51.  But, to reach it at this point, the rising red channel would need to break down — bearish for stocks.  In other words, this is probably as good as we get for the time being.

The SMA200 (which recently dropped below the SMA100) is now below 53 and as discussed yesterday, would make an excellent bounce target if the red channel holds.  A close below 44, on the other hand, would be problematic.I should also note that ES needs to close above 1959.60 in order to be back above its neckline.

UPDATE:  3:34 PM

Last 30 minutes, and USDJPY just reached its .618 as SPX reached the purple .500 and SMA10.  I’d take a stab at a bounce into the close here.  Tight stops recommended, as the SMA10 is slightly lower still: 1946.13.Given how squirrely things were today, I would definitely not hold overnight at these levels.

UPDATE:  3:55 PM

Wow.  Stopped out again, and back where we started at the bottom of the rising white channel.  A break below would be fairly bearish; but, remember how the algos love to trap traders into the cash close.  I’m assuming SPX will rebound tomorrow, but wouldn’t bet on it overnight without hedging.USDJPY isn’t closing at support that I can see, so the rest of story will happen after the close — whatever it is.

Please note: I will be able to chart early tomorrow morning, but will be away from about 11:00am-12:45pm.  Should be an interesting day…

Epilogue after the close.

EPILOGUE:

The fact that SPX and ES retreated and tagged their channel bottoms should concern bulls, but we can’t read too much into it just yet.  For one thing, today’s retracement was only slightly greater than 61.8% of yesterday’s spike.

Second, it obviously leaves the rising channel in place — with not so much as an overshoot to the downside.

Third, there have been many recent closes below a key moving average that were merely head fakes.  The key charts to watch overnight, IMO, are the following:

A very well-formed channel in ES which obviously needs to maintain its momentum to avoid turning into a flag that leads to lower prices:And, USDJPY, which backtested the .618 Fib after being rejected at the SMA200.  It can’t go back below 120.11 without damaging stocks uptrend.I have some more charts which I will try to post either later this evening or in the morning.

A reminder: I will be out between 11:00am-12:45pm tomorrow, so plan your trading accordingly.  It could be a volatile day.

GLTA.

 

 

AUDUSD spent most of 2011-13 overbought, trying to push convincingly past the 1.618 extension of the drop from 1997 to 2001.  It finally fell back to earth starting in May 2013, dipping for the final time below the 1.618 and subsequently taking out the 1996 high, the yellow .786 and, most recently, the yellow .618.While the .618 is a preferred reversal target for such patterns, the downside might not be complete.

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In our July update on NYA, I drew a target at the white .886 Fib line — also the bottom of a channel (red, below) connecting the two previous lows — and pronounced it do or die time for the index.

As it turns out, NYA had no trouble reaching that target.  It also had no trouble reaching the 1.272 extension down at 9513.  So, bottom line, it “died.”

Is it beyond resurrection?  And, what does it tell us about the broader markets and whether the downside is over?

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Although I post CL charts almost every day in our daily updates, a reader pointed out that it’s been a while since we looked at the big picture.   We called the March bottom very accurately [see: Mar 17 Update on Oil], but we were a few days early on last month’s lows [Aug 19 vs Aug 24, see: Oil Bottoms Out.]

Our upside target of the falling white channel midline, however, was right on the money.Every channel midline tag raises the question of a reversal or breakout.  In this case, it’s all up to the BoJ.

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Note that CL hasn’t quite reached the white midline (42.51) we talked about last week.  Beyond that, the August lows didn’t quite reach the red 1.618 — meaning another leg lower to 37.07 is still on the table.

The first upside target, should prices break through the midline, is the purple .618 at 54.45.  The intersection with the white channel .786 is around Sep 21.  Other targets: the purple .886 (61.7) intersects the white channel top around Sep 11, and the .786 58.99) intersects it around Oct 9.

The bigger picture remains quite bearish, with prices breaking below March’s Bat Pattern completion at the white .886.  And, the bounce off the .886 never even reached the .618.As I’ve written about extensively, CL is now in the hands of the central planners — who will lower the price of oil if Japan plays along and depresses the yen even further to keep the yen carry trade alive.

If, on the other hand, USDJPY is allowed to drop much below 120.11, look for the price of oil to increase — an incentive for the BoJ to do the right thing.  This morning, for instance, oil sold off nicely with USDJPY’s rally to 120.11, and immediately started rallying when USDJPY fell back below.

So, like both stocks and bonds, CL is now subject to the whims of the central bankers and their efforts to keep QE-fueled prices on the rise.  When it comes to the BoJ, it’s the most effective club TPTB have.

The futures are up over 30 points at present.  Why?  The headlines will point to China’s massive intervention, or this morning’s economic news, or maybe even speculation over the Fed’s upcoming action/inaction.

The reality is that the BoJ decided that things were getting out of hand, and they decided to bring USDJPY back to the magic salvation of the .618 Fib at 120.11.Who in their right mind could have looked at Friday’s falling red channel and felt bullish about USDJPY’s prospects?  As we wrote on Friday:

Stay short over the weekend and risk a big pop higher over the 3-day weekend.  Go long and risk a 55-pt gap down.

When equities, bonds and oil are all taking their cues from the whims of the BoJ and their notion of when “enough is enough,” well… that isn’t really a market anymore, is it?

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In our last major update on March 13, I noted that DX was approaching the 61.8% retracement of the drop from 2001 to 2008 and two key channel lines, writing at the time:

The white .618 intersects with two major channel lines… Should DX punch through, there’s much more upside.  Otherwise, look for a correction in the very near future.

As fate would have it, March 13 itself was the high.  DX didn’t go on up and tag the .618.  Instead, it has been forming a slightly falling sideways pattern that would qualify as a flag pattern if it would zip up and tag the potential upper bound.

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VIX finally broke out of its 8-month old flag pattern, and did it in style.  In the process, it did a darn good impersonation of the 1997-2007 cycle.

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The volatility we projected in our last EURUSD update has been muted by a continuing lack of correlation with other markets.  The ECB was so long in actually instituting its easing that the markets were able to significantly front-run it, rendering it fairly useless as a carry trade vehicle.

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Not really big, more like medium range. Three weeks tops.  With lots of talking heads embracing the idea of another leg down, let’s evaluate the potential.

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The past few days have been all about whether the Fed, ECB and BoJ will or won’t step in and calm the markets.  With a better than expected unemployment rate out this morning, the Fed will be under increasing pressure to raise rates, if even a little.

Needless to say, this isn’t helping stocks much.  The futures are currently off 25 points, but the real damage was done yesterday after Japan opened and USDJPY retreated once again from the safety of 120.11.

It’s pretty clear that stocks have protested each drop through the yellow Fib at 120.11, and each trip above has been rewarded.  While the BoJ wishes it weren’t in this predicament, it is.  And, of course, it’s not by accident.

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