Thanks to last night’s 1.9% ramp job in CL and a breakout in USDJPY, S&P futures have been pushed up to the brink of another breakout.  This will be the 9th since mid-April.  So, if you’re a swing trader and feeling a little frazzled, you’re not alone.  For those in US time zones, it’s like placing a bet on a high stakes blackjack game, then having to wait until you wake up in the morning to discover whether or not you’ve busted.

So, while I can tell you where SPX is probably going in the next few minutes, no one except the CL and USDJPY button pushers can tell you what happens after that.

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From Reuters:

U.S. Treasury Secretary Jack Lew told his Japanese counterpart Taro Aso in a meeting on Saturday that it is important to refrain from competitive currency devaluation, according to a statement from the Treasury Department.

Lew, who met Aso earlier on Saturday at a Group of Seven summit in Sendai, northeastern Japan, also underscored the Group of 20 commitment to use all policy tools to promote growth, the statement said.

The problem, of course, is that currency devaluation manipulation is the only tool Aso has left.  And, it is pretty obvious it has no impact, whatsoever, on growth.  It is merely a tool with which to prop up stocks — nothing more.

The USDJPY has broken trend this morning, though not irretrievably.  It’s enough, though, to take the bloom off Friday’s rose.

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Another OPEX Friday, another overnight ramp job.  CL has dropped back down, but not too far, in order to position itself for another pop.continued for members… (more…)

ES and SPX had no trouble finding our downside target yesterday, the neckline of a large H&S Pattern.  They even had help from, of all people, two FedPrez’s who insist we’re not taking a June rate hike seriously enough (we’ll believe it when we see it, gentlemen.)ES is trying to bounce higher, but CL and USDJPY haven’t been much help overnight.

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SPX nailed our next downside target yesterday, but the fun isn’t over.  The eminis still have something to prove — its own H&S neckline — meaning SPX has a little further to go.  From last Friday’s To H&S or Not to H&S:It will require some fancy footwork by CL, which popped up past its .618 Fib yesterday as though oil-related news had been positive.  But, note the slide back below the white TL, and the lack, thus far, of a proper backtest.  Remember, we have an EIA report out at 10:30 EDT.

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Lots of charts updated yesterday: CL, COMP, AUDUSD and DJIA.  I hope to finish several more today.

SPX melted up all day, yesterday, to the tune of CL and a late surge by USDJPY — tag teaming stocks higher.  We finally had a reversal where expected, and SPX dropped to backtest the H&S neckline its been working so hard to avoid playing out.

It appears, from the futures’ action, we’ll get a shot at the IH&S discussed near the end of yesterday’s session.

USDJPY has been all over the map lately, but still owes us a reaction to the latest .618. continued for members… (more…)

AUDUSD has been quite coy lately, bouncing strongly in between two major Fib levels, then breaking down before it could reach a good bounce point.  It’s mostly reacting to the schizophrenic US dollar, [see: May 6 Update on DX] which has been all over the map in an effort to prop up stocks.

AUD reached our .6897 target last September, but couldn’t seal the deal on .6584 before plunging stock prices sent it soaring.  From 2011 through 2015, a rising dollar (i.e. rising USDJPY) sent stocks higher.  Since the start of the year, however, CL  has taken over the job of driving up stocks.  And, when CL rises, the USD generally falls, which drives AUDUSD higher.

That’s why AUDUSD’s breakdown over the past two weeks is so interesting and, potentially, so important.

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In our last update on COMP, I noted that the rising wedge we first charted in October had held off a second attempt to best the Jul 20 highs.  The upside case looked better as a result of both higher highs and higher lows.  But, it wasn’t a slam dunk.  From Dec 4:

If [COMP] can’t make the leap, then there’s plenty of downside ahead: the red .618 at 4872, the white channel midline at 4500, etc.  But, that’s not the way it’s shaping up.

As it happened, COMP had already peaked two days prior, and couldn’t make the leap.  The wedge played out beautifully, and those downside targets were taken out in quick succession.  By the time the dust settled at 4209, COMP had shed almost 19% from its December highs.

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Though we post updated CL charts every day, it’s been a while since we took a step back to examine the big picture.

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Metaphorically speaking, CL suffered heart palpitations on Aug 24 2015, went into full-scale cardiac arrest on Dec 7, and was resuscitated this past Feb 11.

Aug 24 marked its bounce on the bottom of a very long-term price channel.  Dec 7 was the day it plunged through the channel bottom.  And, Feb 11 marked the bottom — the level at which we remarked, that day, that it must bounce.

As the .886 retracement of the rise from 10.65 to 147.27 between 1998 and 2008, 26.22 was the lowest price target listed in our Jan 6 Update on Oil.  As we noted that day, below 26.22, and “things could get really nasty.”

Our outlook on CL was heavily influenced by what I saw as a growing reliance on oil futures to drive stock algorithms.

CL, in itself, has become a pretty effective algo tool.  That is, when USDJPY isn’t available for ramping duty, a strong spike in CL almost always works.

And, if USDJPY doesn’t start moving higher soon, we’re going to see a lot more days like today, with sub-2000 SPX [see: Yen Carry Trade.]

SPX fell 200 (about 10%) points over the next two weeks as USDJPY continued to plunge through support.  An interim bounce at 27.56 helped SPX bounce 135 points.  But, the subsequent drop to 26.05 on Feb 11 unwound all those gains.

Since Feb 11, CL has rebounded an astounding 80% — the biggest quarterly gain since the stock market crash was declared over in 2009.  SPX has rebounded 16.6% higher after bottoming the same day.

And, CL continues to drive stocks higher — as illustrated in recent posts such as How to Engineer a Rally.  Is it sustainable?  Doubtful.  As CL becomes more expensive, consumers slide that much further under the bus — especially the Japanese, whose currency recently resumed weakening again, a double whammy because oil is priced in US dollars.

Then, there’s the central banker We-Need-More-Inflation! meme.  For those of you who occasionally eat or drive, ever wonder why central banks exclude food and energy costs from their core CPI calculations?  Ostensibly, it’s because these costs are just too darned volatile.

The reality?  It’s hard to argue a pressing need for more monetary stimulus when actual inflation, if measured as it was in 1980, is closer to 9%.  It also helps suppress cost of living adjustments for pensioners and their ilk.  For a nice treatise on the changes and the rationale, see John Williams’ excellent Shadow Government Statistics.

When stock prices are at all-time highs, driven there by artificially low interest rates, direct central bank purchases and CL manipulation, is there any chance that oil prices will ever decline again?  Actually, yes.  But, it will mean finding a new (or, rather, old) catalyst for the algos.

The yen carry trade is still an option.  But, the BoJ has made it clear they don’t really want an even cheaper yen (higher USDJPY.)  They simply want the higher stock prices that come from it.  If CL were to dump, USDJPY would have to rally to support stocks.  They’ve certainly been talking, lately, as if that’s in the cards.

With that said, our forecast includes two scenarios.

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