Fascinating interplay between the yen, the euro and the dollar today.  Biggest problem for bulls continues to be the broken rising white channel.

Look for any more downside to be relegated as much as possible to the after-hours to offset the likely overnight decline in CL, which is ramping like crazy to try and stop SPX’s plunge.  There’s a nice backtest available at the close where the red midline crosses the white channel bottom at 119.80.

They had to run CL up through two channel tops — one of them from Jun 2014!  Same thing happened on Mar 5, and they had to ramp USDJPY back above the .618 at 120.11 to cover CL’s retreat.

SPX tagged our downside target [see: Mar 20 Update] of 2089 early this morning.  A meager bounce saw it slide through support at the SMA50 to within a point of our final target of the day: 2066-2068.The EURUSD is lending a hand as best it can, but badly needs a breather.

Breaking the TL from Mar 12 definitely did some damage.  What does it do to our forecast?

continued for members… (more…)

Since we spend so much time looking at the yen and the euro compared to the US dollar, it made sense to compare the two to one another.  The yen has been the primary driver of rising stock prices for several years, now.

Will the ECB’s much heralded entry of the euro into currencies’ “race to the bottom” change the equation?

As seen above, the pair has bounced back and forth in a very broad channel ever since the euro’s inception.  In the early years of 95-98, the euro gained at the yen’s expense as SPX enjoyed an extended bull market.

When EURJPY topped out in 1998, SPX fell almost 20% over the next month, but recovered to make new highs 18 months later in Mar 2000.  This began a period of inverse correlation that would last until Oct 2002, when SPX finally hit bottom after falling nearly 50%.

Once it did, a strong positive correlation resumed until EURJPY peaked again in 2007.  This time, stocks peaked at about the same time.  As SPX neared a 300-pt decline, EURJPY shot up to a slightly higher level before joining in the crash.

EURJPY bottomed out in Jan 2009, SPX in March. The correlation stayed fairly positive except that EURJPY’s two waves lower were matched by much smaller corrections in SPX — which was beginning to feel the full effects of the Fed’s QE.

When SPX (along with USDJPY) bottomed out in Oct 2011, it touched off a run of extremely strong positive correlation that lasted until December 2013.  EURJPY topped out and began a steady decline that lasted into September, while SPX ratcheted ever higher.

Finally, on Sept 19, EURJPY reversed at the top of a triangle (below, in yellow) that had been forming since Dec 2013.  Only, this time, it didn’t stop at 136 as it had several times before.

That momentary lapse, that brief bout of yen strengthening, was enough to send SPX 200 points lower by Oct 15 — a collapse that was only arrested by the announcement on Oct 31 that the Bank of Japan would extend and greatly expand its QQE and triple its stock buying.

EURJPY shot up almost 12% over the next seven weeks — which was all stocks needed in order to rally into the end of the year.  Since mid-December, however, it’s been a different story.

The ECB officially got into the currency debasement game. A weaker euro sent EURJPY tumbling by nearly 15% by Mar 13, following the steep falling red channel shown in detail below.EURJPY’s four bounces have produced bounces in SPX of 120, 71, 124 and 69 points.  But, one gets the feeling that the rubber band is becoming rather stretched.  In the past, SPX has eventually “caught down” with a plunging EURJPY.  That falling red channel portends more of the same.

The USDJPY has already broken down from a very well-defined channel that dates back to Jan 13 — signalling a strengthening yen.And, though EURUSD experienced a very fortuitous bounce after having fallen through the bottom of two channels of its own, the ECB is working to cheapen the common currency even further.  The next major support is almost 10% lower.

In other words, there’s little reason to think that EURJPY will do anything other than continue its freefall in the falling red channel.  How much longer can the divergence between it and SPX go on?  Time will tell whether we’re in a 2000 or 2007-style bubble.  Though, currency manipulation isn’t the only tool at central bankers’ disposal.The rising red channel midline is still below at around 125.47.  And, just underneath that, the white .500 Fib line at 121.93 might offer some support.

Below that, however, the next major support isn’t until the white Fib crosses the falling purple channel midline and rising red channel line at around 115.36 in late April/early May.  And, the biggest target is down around 106 later this summer.

It should be an interesting summer.

 

 

 

 

 

 

 

 

 

continuing…

Note:  RUT and COMP charts were updated last night.  Check them out.

*  *  *  *  *

Since reaching  our Mar 17 upside target and generating a sell signal last Friday, SPX had gone virtually nowhere  — until the last few minutes of yesterday’s session, when it suddenly gave up 8 points or so.It was a tug of war all day, with rising oil and EURUSD providing cover for a falling USDJPY.There are three troubling developments for bulls this morning.  As the chart above shows, USDJPY’s rising white channel has broken down — at least for the moment.  And, CL has reached the top of the falling white channel.

Last, DX is bouncing at our downside target.

The implications of all the above are bearish, and we should see some follow-through in SPX today.

There are several potential targets. continued for members… (more…)

When we last reviewed COMP on Oct 14, 2014, it had flouted so many chart patterns and Fibonacci retracements that the chart was as clear as mud.  Note from the comments that we had already taken to putting quotation marks around the word “market” — a very good indication of our frame of mind at the time.

The close-up reveals the Sep highs didn’t quite reach the .886, and the latest low didn’t quite reach the .618.  Either could still be in play, depending on the overall “market’s” intentions.

This was nothing new.  The long-term chart contains many such breaks with charting convention.  Note the general absence of reversals at major Fib levels.

The last time it had done anything very conventional, it bounced at the SMA200 on Apr 15, 2014 — which happened to line up nicely with a trend line from the two previous lows.

So, we paid attention when six months later — on Oct 13 — it closed beneath the SMA200.  We really sat up and paid attention when it continued to plunge below the SMA200 and the trend line from 2009.

We weren’t the only ones.  Fed president Jim Bullard got a frantic call from someone who informed him of the bearish developments and suggested he get himself on TV pronto — which he did.

At 1:30 into the clip above, he suggests the Fed might pause the taper if the “inflation expectations” — wink, wink — didn’t remain near their target.  That’s all the “market” needed to hear.

Three sessions later, the plunge below the 5+ year TL was forgotten and COMP shot above the .886 to new highs.

Since then, it has constructed a TL connecting four distinct highs that reaches the former all-time high around mid-April.  It has also tested the SMA100 four times, holding even when it closed below it.

The rising wedge is fairly well-formed.  But, we wouldn’t bet on it playing out.  Consider that the last two highs have slightly exceeded a TL (solid red, above) connecting the much more important highs of 2004 and 2007.

Of all the charts out there, COMP has been one of the most dysfunctional.  This might or might not change anytime soon.  It will depend completely on the extent to which Bullard and his central banking homies leave the “markets” alone — if ever.

In our last major update on RUT, we noted that a rising channel from  had broken down.  But, we also noted, RUT had since bottomed out and was aggressively backtesting — climbing the underside of the broken channel.

Now, backtests can and — in this rigged market — often do go on to exceed previous highs.  So, the current one could easily climb right on up the belly of the broken wedge to 1213 or higher.

In fact, that’s exactly what happened — thanks to the Bank of Japan.

First, a little background.

RUT’s drop through major support had drawn attention.  Even permabulls had noticed the glaring divergence between RUT and SPX.  And, they were starting to talk.

continued for members… (more…)

SPX reached our secondary target at 2110.48 Friday — two sessions ahead of schedule.  Per our Mar 17 forecast (members’ section):

Assuming SPX can get past the SMA20, the midline also intersects with the broken purple channel bottom for a backtest Thursday morning at the red .786 (or next Tuesday the 24th at the .886 at 2110.48.)

We recommended taking profits at this level Friday.  In addition to completing the small Bat Pattern, SPX has backtested the broken purple channel.  Of course, bulls would love nothing more than to barge right back into it as has been done with many V-shaped “recoveries” over the past year or two.

This morning, USDJPY is nearing the white channel bottom with support around 119.61 (and secondary support at 119.44)……while CL was eased down overnight to its trend line support.The damage done to DX isn’t dinging stocks…

…thanks to EURUSD’s continuing bounce.

Note that EURUSD is nearing completion of a Gartley Pattern at 1.0949.  Regardless of whether it reverses, EURUSD’s strength since bottoming at 1.0462 on the 17th has to leave ECB easing fans wondering — if not worrying.

DAX’s spectacular 28% run (from Jan 5) leveled off on Mar 16, when EURUSD’s slide was interrupted in order to save SPX from declining any further.  If the euro resumes falling, however, that task will revert to USDJPY and CL — both of which have managed to boost SPX during the day (sometimes taking turns) while resetting overnight.

Thus, neither is really going anywhere.  But, the benefit to SPX is nevertheless positive.  It begs the question: “how long can this go on?”  The answer, as is often the case, lies in the past.

continued for members… (more…)

Stocks topped out just north of our 2102.49 target on Wednesday [see: Mar 17 CIW] and spent most of Thursday backfilling and testing the SMA20.Since USDJPY is back above the critical .618 Fib at 120.11, we’re meant to believe it is breaking out yet again (despite Paul Tudor Jones’ warning.)  But, as we point out in yesterday’s Update on USDJPY, this is the fifth time above 120.11 since December.

Four of the previous times sent stocks reeling when USDJPY wasn’t able to break out:

1.  a 107-pt drop from 2079 to 1972 in seven sessions.
2.  fell 101 points in five sessions (and, marginally lower over the next two weeks)
3.  gained 52-pts (on oil’s bounce) but tumbled as USDJPY failed a second try
4.  a 30-pt slide on USDJPY’s pullback from the Fib and the red, dashed TL
5.  a 64-pt drop (when oil’s bounce failed)

Wednesday’s CL, USDJPY and DX takedown was discussed extensively in Algos Gone Wild.  It analyzes beat for beat the means by which the markets have been manipulated higher over the past three months through a combination of moves that supports the yen carry trade.

It has been very effective and won’t stop working until USDJPY fails to hold 120.11, oil tumbles much further, or the dollar reverses sharply.  And, when the carry trade falters, there’s always the overnight ES ramp job, VIX manipulation, bond futures manipulation, etc.

Last night, it was the DAX breaking through resistance combined with a nice bounce in oil that enabled ES to rally 14 points.  It’s backing off now, as that same oil bounce is causing DX to plummet, thus dinging USDJPY.

It’s the same set of circumstances that led to Wednesday afternoon’s turmoil.  It’ll be interesting to see how TPTB handles it today with CL clearly breaking above a two-week TL and the resultant hit to DX and USDJPY.

Stock bulls will see this as bullish, even though it runs counter to the Fed’s objectives and will require corrective action that could undo SPX’s rally.  One possible way would be to take EURUSD down, potentially strengthening DX without as much impact on USDJPY.

The less elegant, but often used, method is to wait until after the cash close.  Of course, this being a quad-witching day and with the futures already up so big, all they have to do is hold the opening spike.  We’ll have to wait and see.

Overhead resistance is at 2102.49 today.  If SPX breaks through, our next upside targets remain intact.

continued for members… (more…)

We post daily and intra-day charts for USDJPY almost every day.  But, it’s been a while since our last look at the big picture.  Last December 4, we noted several approaching possible resistance levels.  The first was the approaching .618 Fib retracement of the drop from 147 to 75 between 1998 and 2011.

With USDJPY at 119.20 at the time, we’d know pretty quickly whether Leonardo Fibonacci’s observations would hold any sway.  We wrote:

With the end of the year coming up, I suspect we’ll see USDJPY barely pause at 120.11, but instead come back to backtest it — maybe even slipping below in the backtest.  Whether they can keep the scam alive after year-end, I can’t say.  But, there is little in the way of resistance [after 120.11] other than the top of the tight, white rising acceleration channel the pair has been in since early November.

Since then, USDJPY has pushed through 120.11 five separate times.  All but one of those times — the most recent — it fell back below, sending stocks scrambling for cover.

Oddly enough, the first came on Dec 5, the day after that post.  USDJPY shot up almost 2% through 120.11, closing at 121.44.  Over the next seven sessions, however, it fell 4.9% to 115.56. SPX followed suit with a 107-pt plunge that was then miraculously erased by USDJPY just in time for new all-time highs by year-end.

It was a sign of things to come.  The impact that each rise above 120.11 had on SPX:

1.  a 107-pt drop from 2079 to 1972 in seven sessions.
2.  fell 101 points in five sessions (and, marginally lower over the next two weeks)
3.  gained 52-pts (on oil’s bounce) but tumbled as USDJPY failed a second try
4.  a 30-pt slide on USDJPY’s pullback from the Fib and the red, dashed TL
5.  a 64-pt drop (when oil’s bounce failed)

This most recent push above 120.11 was arguably the most interesting.  With CL plunging back below the long-term trend line from 1998, it was only USDJPY’s spike higher that initially saved stocks from tumbling.

USDJPY even registered a new high on Mar 10.  But, it took seven sessions of closing above the white .886 Fib at 121.12 for SPX to believe it was for real and begin its latest recovery.  Yesterday, being an FOMC algo announcement day, USDJPY was used as a blunt force object to bludgeon oil prices back down.

When all the dust settled, USDJPY had fleshed out the bottom of its rising channel and managed to close back near 120.11.

Note that it closed today back above 120.11 — but, is running into potential resistance at the white channel midline.  Clearly, The Powers That Be understand the influence USDJPY — and, that .618 Fib in particular — have on stock prices.  As we detailed in Those Wacky Central Bankers, the yen’s demise has been essential to stocks’ rise since 2011.

We don’t know whether SPX can continue to notch new highs, because we don’t know how much pain the BOJ et al. are willing to inflict on the Japanese people.

They’re already reeling from tax hikes that are somehow expected to help revive an economy that’s been circling the drain for years.  If oil prices recover in the least, the “low inflation” deceit will be exposed for all to see.  What then?

The latest brainstorm out of Tokyo stems from the fact that, at the current pace of ¥3 trillion in annual purchases, the BOJ will have exhausted the entire supply of Japanese ETFs by YE 2017 (it already purchases all the bonds the government issues.)  Will they go so far as to buy up individual stocks, too?  And, will that be enough to sustain the carry trade?

Stay tuned.

Long-term trend looking pretty solid…

…but, the bounce is running into resistance from the falling purple channel midline and the rising white channel’s .146 (shown in red.)

Downside targets favor the purple .786 Fib at 90.39, while the upside opens up above the purple midline and, of course, 94.18.

 

Over the past year, as headlines (if not reality) began to support the narrative of an improving economy, the Fed found itself in a position where they needed to either raise interest rates or change the narrative.  With over $18 trillion in debt, raising rates is not an option.

Crashing oil prices and a soaring dollar was the only solution [see: Those Wacky Central Bankers] that enabled them to keep both interest rates and inflation under control while preserving the yen carry trade.

But, there was a limit.  If oil prices got too low, the damage to banks who are heavily exposed to the industry would be too great.  And, the dollar was also getting to the point where even Yellen admitted it might be problematic.

The chart below shows the relationship between crude light (red) and the US dollar (purple) over the years.  It has historically shown a strong inverse correlation.

Yesterday’s fedspeak and market manipulation were designed to stabilize oil, the dollar and interest rates — all in one.  And, things were going pretty much according to plan — until the algos got a little out of control.  Actually, make that a lot out of control.

In the process of levitating stocks (to illustrate how wise and beneficial the Fed’s actions were) they forgot to put a lid on oil. Having already bottomed out as we expected two days ago [see: Update on Oil Mar 17] CL popped up through the trend line from 1998, threatening to undo all that nifty price control that got it down to an acceptable level in the first place.

This presented a quandary to the guys pulling the levers and pushing the buttons: how to kill off oil’s rally without also killing stocks?  Because oil and the dollar are so strongly inversely correlated, they needed to quickly ramp up the dollar.

But, the dollar and stocks have been strongly positively correlated lately.  Oil’s occasional ramp jobs have been a big part of algo trading ever since CL first stabilized in January.  So, ramping the dollar would add fuel to stocks and, hence, also oil.

The only solution was to use the yen to bring SPX and, thus, CL back under control.  As we wrote at 3:20 in the members section:

Gotta crash USDJPY (at least until after the close when it can all be reset.)  Maybe CL can be hammered back down then, too.

A cratering yen has been critical to the all-important carry trade which has fueled most of stocks’ rise since 2012.  The movement of USDJPY is the single most important contributor to stock price swings on not only a daily basis, but moment-to-moment as well.  We document its very high positive correlation with SPX on these pages almost every day.

Since mid-January, USDJPY has been advancing within a broad, white channel.  Together with CL (in purple below), is has driven SPX to all-time highs.

In mid-February, when stocks were faltering, USDJPY began constructing a new, steeper channel within the white channel (in gray, above.)  In fact, just two days ago (Mar 17), USDJPY broke out of a perfect little falling red channel above in order to arrest stocks’ sharp decline that day.

By crushing USDJPY (stronger yen, weaker dollar) they could bring stocks and oil back down.  It would mean also crashing the dollar which, as we mentioned above, generally benefits oil.  But, if executed correctly, it would have the necessary effect.

That gray channel had to go — but, preferably in such a way that stocks’ rally wouldn’t suffer any irreparable damage.  The key was timing.

USDJPY had dropped through the gray channel bottom the night before, and the white channel midline shortly after the session opened.  It bounced back above it as Yellen started her double-talk; but, when CL spiked through its overhead resistance, USDJPY was decisively crushed.

It had an immediate effect on stocks, which had just backtested the broken purple channel as we had expected.  We posted the chart below in Tuesday morning’s members section, along with the commentary:

Assuming SPX can get past the SMA20, the midline also intersects with the broken purple channel bottom for a backtest Thursday morning at the red .786 at 2102.49 (or next Tuesday the 24th at the .886 at 2110.48.)

The algos ramped SPX up to 2102 (where we recommended taking profits) and then some.  It had reached 2106.85 before the USDJPY crash finally caught its attention.  It backed off to 2096 by the closing bell, and was threatening more — especially, given the carnage going on with USDJPY, which had just dropped below a critical Fib line.

The white arrow on the USDJPY chart below marks the final 5 minutes of the session, when the pair dropped below 120.11 — the critical .618 Fib retracement of the pair’s decline from its 1998 high of 147 to its low of 75 in 2012.

This was a particularly bad omen for stocks, as previous dips below this line have led to large declines in SPX if they occur during market hours (after-hours, it’s easy to prop up ES in the much lighter volume.)

DX traders took note of the reversal and the crash in USDJPY.  If stocks were going to crater, they certainly didn’t intend to be left holding the bag.

The Fed was able to prop it up until the cash market closed at 4:00 (the white arrow below.  By then, it had fallen back to the purple channel top it had broken out of on Mar 10 (when USDJPY ramped higher to arrest SPX’s plunge.)

After the cash market closed, however, all bets were off.

Stunned by USDJPY’s continuing plunge (it didn’t bottom out until 4:04) and the likelihood that stocks would follow suit, the dollar flash crashed.  It plunged through our initial target at 98.82 and even through our primary target at 96.17 [see: Update on the Dollar Mar 13].

Finally, when it had reached the February lows, the Fed pulled out all the stops to support it.  It bottomed at 4:06, two minutes after USDJPY.  That it miraculously recovered overnight and is now pushing above the purple channel top again (in order to arrest this morning’s sell-off) is no coincidence.

That the USDJPY found support at the white channel bottom is not a coincidence. That EURUSD briefly popped above the midline of a 12-year old channel is not a coincidence.  That CL is suddenly back below the long-term trend line from 1998 (yes, hammered back down overnight) is most definitely not a coincidence.

In fact, there is very little in the way of coincidences in the “market” anymore.  Most of the time, the day-to-day moves are carefully scripted by central banks and the algos and HFT traders that capitalize on their continuing largesse.

The folks writing the script may tell us to pay no attention to “those algos behind the curtain.”  But, as events such as Black Monday, the LTCM debacle, the 2010 Flash Crash and the 2011 US credit downgrade taught us, they are a dangerous and destructive force that is always present — just waiting for the right conditions.

So, every once in a while — particularly when narratives need changing or correlations need resetting — things will get out of control.  As human beings increasingly yield the trading floor to machines, we believe the resulting lower volume and lack of rationale oversight will result in more such events.

Good luck to all.