Yesterday was one of those days where the charting was deceptively easy (if only they all were…)  We started out with essentially the same chart as was posted last Friday. The only alteration was to add another downside target (the lowest red “S”) at the falling white channel top in order to accommodate a potential backtest of that channel.

Our gameplan for the day was pretty straightforward, a continuation of the previous day’s forecast:

…SPX should be shorted overnight at 2053 by those with the stomach and the ability to watch/hedge such positions — a stance that’s looking fairly prescient with the e-mini’s off nearly 30 points just prior to the opening bell…SPX looks likely to nail our next downside target in its opening move.

SPX nailed our next downside target, but the bounce was muted — only 6 1/2 points instead of a backtest of the SMA20.  As such, our next downside target came into play sooner than expected.

Our original plan was for a deeper drop to somewhat match the left shoulder using the red neckline.  I chose a backtest of the falling white channel at 2017ish as the target.  I see this as at least a 50:50 shot…

The backtest stopped just short of our target at 2019.  We then projected a bounce back to the SMA10 and then the SMA20 at 2041, at which point we recommended a protective stop.  SPX reached 2043, then reversed — triggering our stop and setting our sites on the SMA10 at 2029.  SPX closed at 2029.88.

After the close yesterday, AAPL blew the doors off most everyone’s forecast — kicking off a ramp-a-thon that saw USDJPY rally back to the channel top (yes, again) and S&P futures a whopping 24 points. Even though USDJPY backed off the channel top overnight, ES is clinging to a 5-6 point gain.  This leaves the chart picture muddled, which is appropriate given that we’ll have a Fed rate decision coming up at 2pm EST.  There will be no press conference, and no shocking shifts in policy are expected.  But, it still leaves the “market” in a bit of suspense.

With the close at the SMA10 support yesterday, and a subsequent pop in the futures, the immediate trend looks to be higher.  Remember, the drop to 2019 was a backtest of a falling channel.

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Our last update [see: Update on Bonds Dec 5, 2014] came on the heels of a strong move higher in interest rates — from 1.68 to 2.40% in 3 weeks time.  We wrote at the time:

Yields on the 10-yr have bounced strongly since it reached our reversal target on Monday [see: CIW Dec 1.]  Today, TNX tested both the 20- and 50-day moving averages and is probably ready for a breather, if not outright reversal.

Dec 5, as it turned out, marked an important top for yields on the 10-yr, which dropped from 2.33 (the white arrow below) to 1.70% by mid-January.

Though yields bounced pretty nicely at that point, they couldn’t push back above the bottom of the (corrective) red channel and have since slumped lower.

We believe yields will drop even further in the next month or so and have set a target of 1.53% by late February.

Taking a look at the big picture, we can see the white .886 and the red 1.618 Fib levels — which are closely aligned — intersect with a falling white channel line around that time.

While the confluence of chart patterns suggests a decent bounce, slumping interest rates and economies around the world could just as well portend a continuation of the falling white channel.

If Spain and Italy can trade below 1.5%, why not the US?  From Bloomberg:

One last thought…while yields and SPX were moving opposite one another earlier in the year, they snapped back in sync between mid-November and year’s-end.  Since then, they’ve diverged again — with yields trending much lower while stocks managed a volatile holding pattern.

But, the divergence is actually much, much greater than that.  As we’ve pointed out many times, big declines in interest rates have been highly correlated with big declines in stocks over the past 10 years.

The last four declines in TNX are highlighted above.  Note the percentage decline in SPX during each period: -52%, -15%, -20% and -10%.

The decline which 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 past three.

Yet, it’s the only one accompanied by an increase in SPX — a whopping 14% increase, at that.  It does make one wonder what would happen to stocks if central banks ever stopped propping them up.

 

Yesterday’s forecast worked out nicely.  Recall that this was the same scenario first laid out last Friday.

As such, I see no reason to adjust Friday morning’s chart/forecast: a test of the SMA20/50 — and a potential IH&S right shoulder if those don’t hold.

After SPX reached our initial downside target, we called for a bounce that was only slightly more exuberant than anticipated.  Watching USDJPY, we noted:

It’s now threatening a breakout for the fifth time since early January.  I suspect this one will also run out of juice, leaving SPX to backtest the rising white channel at around 2053 before heading further south.

SPX bounced off the SMA20 at 2040 up to 2055, then hung around while USDJPY teased us with the idea of a breakout — a breakout that failed yet again last night.

Our closing note to members was that SPX should be shorted overnight at 2053 by those with the stomach and the ability to watch/hedge such positions — a stance that’s looking fairly prescient with the e-mini’s off nearly 30 points just prior to the opening bell.

SPX is at our target of 2053.  I’d short here with tight stops — but would strongly recommend cash overnight for those who can’t hedge or watch their position like a hawk overnight.

SPX looks likely to nail our next downside target in its opening move.  We’ll update the charts shortly.

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Last Friday’s pre-opening forecast worked out very nicely.  I just drew it backwards.

Initial support can be found at the white .618 at 2053.29 and the rising white TL off the Oct 15 lows.  After that, the SMA20/50.  And, in the event it pushes lower, a backtest of the falling white channel (the red S.)

I thought the initial drop would tag the white TL from mid-October, and the close would be at the .618 at 2053.29.  It worked the other way around.

Futures were off 37 points in the wake of the Greek elections, but have recovered virtually all of those losses in the usual overnight USDJPY-driven ramp job.

Another factor weighing on equities: oil.  Crude light tested its previous lows late Friday.  Though it bounced on OPEC General Secretary El-Badri’s comments, it’s still looking rather wobbly.

As such, I see no reason to adjust Friday morning’s chart/forecast: a test of the SMA20/50 — and a potential IH&S right shoulder if those don’t hold.

UPDATE:  10:40 AM

So far, so good on this morning’s forecast.

For those wondering whether or not the lower target will play out…it’s hard to say.  Tell me whether or not USDJPY will break out of its falling channel that goes back to Dec 7.

It’s had three stick saves (on Jan 21, 22 and 25) that also propped up SPX (ES shown below for charting purposes.)

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When we last reviewed gold in November, it had dipped below an important level of support.

As we noted back then:

…a failure to retake the broken TL would indicate lower prices to come. [The channel placement] is tricky.  In this case, I’ll give more credence to the upside if/when the red trend line of support (now resistance) is breached.

Wouldn’t you know…gold popped back above that red TL and is currently going strong.  As noted before, I wouldn’t put too much credence in the placement of a very long-term channel like the white one below.  But, the TL is clear.  And, as long as prices stay north of 1180 or so, all is good.

If they don’t, the close-up shows the strong case that could be made for a drop to the yellow .500 Fib at 1089.40.  But, of course, that would require the trend line and previous lows (1140ish) to break down again.

Bottom line, the argument is for a reversal here at the white .500 at 1302.  It also represents a backtest of the yellow .382, the midline of the purple channel and the top of the iffy red channel.

GLTA.

 

 

In last month’s update [see: Update on EURUSD Dec, 3, 2014] we noted that it was approaching an important level of support: the purple .886 that intersected with a trend line connecting the previous three lows.  It was the perfect setup for a bounce if Draghi and friends didn’t come through with the massive quantitative easing they’d been threatening for the past couple of years.

We put a target on the white .618 Fib level just in case they finally did it.  As everyone knows by now, they did it [see, well: They Did It.]

Guess where EURUSD ended up?

For the promise of $1.1 trillion or so in bond purchases, the ECB succeeded in driving the pair right to our downside target — which it tagged today…and, then bounced.

For anyone trying to relate the move to stocks, the picture is less than crystal clear.  While there has been a strong correlation between SPX (below, in purple) and the euro, that correlation broke down in May 2014, when stocks soared higher in lock step with USDJPY.

We should consider two key questions:

(1)  could EURUSD bounce significantly here, in the wake of the QE announcement?
(2)  what are the ramifications for stocks?

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In last month’s update on VIX, we noted it had fallen below and backtested the rising purple channel bottom.

Should the backtest hold, the message is that stocks have fallen as far as they need to.  VIX will settle lower in order to prevent things from getting out of hand.  But, remember, we’re expecting a fair amount of chop through year-end.  So, don’t be surprised if VIX vacillates around this [level] for days or weeks to come in order to set the stage for stocks’ next push.

The backtest was, itself, a head fake.  VIX dropped for exactly one more day before shooting back up through the channel bottom as SPX logged a 100-pt decline through mid-December.

From there, it was a very wild ride as SPX regained all the losses (and, then some) before shedding 105 points through mid-January.

In my opinion, VIX has lost much of its predictive ability.  It is frequently manipulated by the Fed’s proxies — not to mention other central banks and hedge funds — in order to prop up stocks (particularly at the end of the trading day.)

So, instead of a valid barometer of the level of fear in the markets, it has become more an indicator of when TPTB are stepping in to prevent any further declines.  When things get out of hand — as they seemed to in early October, early December and early January — a monkey-hammering of VIX is just the thing to help “markets” recover.  Note the falling white TL connecting the tops of Oct 15, Dec 16 and Jan 16.

Nevertheless, it might provide some clues to the script which guides the day-to-day moves.  Following a general downtrend from its highs of Oct 2008, VIX spent the couple of years going sideways.

The spike in mid-October reached 31.06, which was roughly a .236 retracement (white grid) of the drop from 89.53 in 2008 to 10.28 this past year, and a .500 retracement of the drop from Aug 2011 (yellow grid.) Note the general uptrend since then as depicted by the revised purple channel.

In the world of harmonics, we might put a pin in that yellow .500 tag and speculate about a potential Bat Pattern leading to the yellow .886 at 43.70.  Note that it’s closely aligned with the purple 1.618 at 43.13.  And, that price level is roughly equal to the previous peaks of the past five years: 48.20 in May 2010 and 48 in Aug 2011.

If the rising purple channel is valid, it wouldn’t happen until July or so, and would slightly violate the .786 falling white channel line.  It would also represent an official breakout of the falling wedge from 2009 (the red, dashed TL and white channel bottom as upper and lower bounds respectively.)

In order to get there, though, VIX would need to rebound at the white channel’s .236 line (currently around 15) and the purple channel would need to hold.  Note that the purple .236 has been tagged already, and the yellow .146 is just below, intersecting with the rising purple channel .236 line (the white dot.)

Again, TPTB know these spots, too (or, at least should) and might well have special plans to smash VIX lower at that point. The purple channel has already tilted to a lesser slope once.  They could be angling for something like the red channel or yellow channel sketched in below.

And, the decline from 25.2 on Dec 16 doesn’t look complete from a wave or harmonic standpoint.  A decline to the white .886 at 13.09 or even the purple channel bottom at 12ish would make all the sense in the world in the short run.

If, on the other hand, VIX reverses around 15, our next upside target is the purple .886 at 29.  The chart below depicts the new purple channel as well as the targets mentioned above.

GLTA.

 

 

 

 

Yesterday’s ECB QE lift-a-thon saw SPX perform pretty much as expected.  SPX reached the midpoint of the target we set Tuesday (2042-2047), then reversed to the bottom of the rising white channel as we detailed in our initial post:

Look for SPX to back off from the SMAs and backtest the broken white channel, possibly around 2030.  TPTB should support it there.

SPX reversed from 2045 to 2026 before the support kicked in, sending it back up through the SMA20 and 50 and through our initial upside target of the day at 2053.

At 2055, we were fine with the idea of taking profits (53 points based on the above calls.)  But, the algos weren’t done.  At 2063, we thought it was probably a good shorting opportunity.

Based on the price action in S&P futures, a drop in oil, and a probable reversal in DX, EURUSD, USDJPY and VIX, we should see at least a partial retrenchment of yesterday’s gains.

Initial support can be found at the white .618 at 2053.29 and the rising white TL off the Oct 15 lows.  After that, the SMA20/50.  And, in the event it pushes lower, a backtest of the falling white channel (the red S.) We’ll update the other charts shortly.

UPDATE:  3:45 PM

Not too shabby….

Tough call going into the weekend.  Even if SPX stops at the rising white channel bottom, it doesn’t mean a continuation of the rise on Monday.

Please note we’ve updated the EURUSD and VIX pages.  The EURUSD in particular holds some interesting implications for the stock market.  VIX tagged our downside target on the nose, bouncing exactly where it needed to in order to get this sell-off in SPX to our downside target.

We’ll update more over the next day or two.  Have a great weekend, everyone!

 

 

 

 

 

 

 

 

 

 

Mario Draghi opened his press conference with a small joke:

“Don’t read too much into this small delay.  It was the elevators.  They are not working.”

Perhaps he was speaking metaphorically — referring to the litany of failed “whatever it takes” efforts to date.

Economists will have to sort out whether they think the ECB’s shiny new QE effort will benefit member EU countries.  But, the futures like what they see, with e-minis gaining as much as 21 points in the minutes following Draghi’s announcement.

As such, look for SPX to reach our target price range of 2042-2047, with a bias toward the upper end of the range.

Yesterday was a nearly picture-perfect performance by chart standards.  We were looking for a drop and pop that would flesh out the rising white channel.  From our initial post:

…stocks should open lower today.  The rising white channel bottom makes for a convenient initial target…Whatever bounce we get…will have to contend with the SMA10 again.  If it can push through, then yesterday’s 2042-2047 target area is very much in play.

The channel tag was on the nose, and SPX did, indeed, push through the SMA10.

2035.29…will be the next test for SPX…should see a reaction here, but hard to say how much.  It could be just a small one, backtesting the rising white channel midline around 2030ish.  If that doesn’t hold, maybe the .500 at 2026 and then the purple TL at 2019.

SPX reached 2038.29, fell to 2030 — where it loitered for 30 minutes or so — then bottomed out at 2022.77.  It rebounded to the falling white channel upper bound and closed there as expected.

UPDATE:  9:35 AM

This morning’s initial thrust came in on target, reaching the middle of our 2042-2047 range at 2045.15.

Look for SPX to back off from the SMAs and backtest the broken white channel, possibly around 2030.  TPTB should support it there.  Any sustained drop below the rising white channel would be quite a bearish development and definitely not in keeping with today’s script.

UPDATE:  2:35 PM

After tagging this morning’s initial upside target, SPX obliged by reversing to backtest the white channel line as expected.  After finding support there, it climbed to our final upside target for the day — the white .618 at 2053.29.

It has leaked slightly higher to the purple .886 at 2055.74, where it might well run out of steam.  Not saying one should short it here (though I think that would probably work out.) But, for anyone who’s captured the 53 points in all that we mapped out this morning, it wouldn’t be a terrible spot to take profits.

UPDATE:  3:12 PM

I guess SPX had a few more points in it after all.  The algos are obviously firmly in charge at the moment, so it needn’t reverse at all.  But, there’s an interesting potential reversal point here at 2063 that makes a lot of sense.

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Stocks faded quickly after the open yesterday — testing the moving averages on both the upside and downside as expected.

USDJPY had reached the upper bound of a falling channel.

If the upper bound holds, then this morning’s rally in stocks should burn out quickly after testing the SMA10.

SPX pushed a little past the SMA10 before dropping fast to the TL we had drawn and testing the SMA100.

…meaning SPX should find support at the white TL after this morning’s sharp reversal.  If not, the SMA100 is just below at 2007.85.

We’ve replaced the TL with a rising white channel in the expectation that the uptrend will continue if the 93% who expect the ECB to bring massive QE to the “market” are correct.

Overnight, USDJPY’s rising wedge finally broke down, meaning stocks should open lower today.  The rising white channel bottom makes for a convenient initial target.

Note that the channel picture for USDJPY is still negative — though we should be wary of a bounce off the falling red channel (in a backtest.)

One cloud hanging over stocks is ECB Governing Council member Nowotny’s comment  that central bankers and policy makers should retain a longer-term perspective and “have a bit of a relaxed attitude to news and not to get too excited about the events of one day.”

Maybe it’s just me, but this doesn’t sound like a guy about to unleash massive amounts of QE.

UPDATE:  9:37 AM

Got the lower bound bounce right on target.

USDJPY rebounded .35 off this morning’s lows, bouncing off the broken red channel as discussed above.

Now for the upside targets…

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