I’ve seen it blamed on everything from a potential delay in the Brexit vote to Bullard’s resumed dovish tilt.  But, yesterday’s stick save was simply the result of our old friend — the USDJPY ramp.

After one of the most devastating dives yet (thank you, FOMC) the pair went on a non-stop melt up which, along with CL bouncing just below our 46.34 target, saw SPX/ES make one of its most vicious V-shaped recoveries this year.

ES has seen many like Wednesday’s — the steady drip, drip, drip of the algos working prices higher.  Yesterday’s 35-pt rebound was so steep as to be laughable.

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The FOMC punted on raising rates yesterday.  As expected, the US dollar tumbled and the USDJPY plunged.  Only very aggressive dollar buying that started around 3am ET halted the pair’s decline.  Note that this is likely the last gasp for the USDJPY and the yen carry trade.  If it can’t rebound here at the .886 Fib retracement of the rise from 100 to 126, then it’s a long way down.

The last time USDJPY traded at 100, SPX was nearing 1823 — the 1.272 extension of its 2007-2010 drop from 1576 to 666.  By all rights, SPX should have reversed there.  But, USDJPY broke out – up 26% over the next 21 months.  It dragged SPX 311 points (17%) higher.

But, much to central bankers’ chagrin, stocks topped out when USDJPY did.  Had oil not stepped up as the new market manipulation tool of choice on Feb 11, stocks would be back down to those Dec 2013 lows.SPX remains on track for our primary downside target, though there are a few potential interim stops along the way.

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As we all wait to see what magical solution the FOMC can come up with to attack both growing inflation and stagnation, the futures are up modestly on the usual USDJPY/NKD ramp.continued for members… (more…)

With lots of central bank and political turmoil likely ahead, I thought it would be a good idea to review the big picture and identify the most likely outcomes for equities.

We’ll start with the weekly chart for SPX.  This is the pure, unadulterated version — showing just how insanely steep the slope is on the channels — both rising and falling.Note that the rising red channel from 2009 is contained within the .236 – .500 quarter of the rising white channel.  It’s no accident that it started below the .236 line.  And, it’s quite significant that SPX arrived back at the white channel midline and the yellow 1.618 Fib at the same time [see: The Last Big Butterfly.]

The index’s difficulty at busting out of the rising purple channel is evident in the mass of channels, Fib grids and assorted other chart features packed in the most recent peak.

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SPX lost key ground yesterday as it dropped back below the top of the channel dating back to May 2015.  CL and USDJPY did their best to stem the losses, but SPX dropped straight to our downside target, then tagged on a little more for good measure.continued for members… (more…)

If you’re a chartist, there are two distinct markets to deal with.  Both are predictable, but only one is enjoyable.   Friday, when SPX nailed our 2090 downside target, closely following the path we laid hours earlier, was fun.

Then…there’s the market’s evil twin.  It’s driven by algorithms that respond to manipulation in CL and USDJPY prices — a clear case of the tail wagging the dog.  Consider the night of June 5, when CL futures, after having struggled to push past a key Fibonacci level for several weeks, departed from a falling channel to push up and out of a rising channel.Never mind that CL is back below the rising white channel top and is even contemplating reentering the falling purple channel.  Never mind that it burned bears by driving ES 22 points higher over the next three sessions.  And, never mind that it’s back below the white .618 Fib level at 48.63.

The point is, it established new highs for ES and SPX — meaning that all those nifty bearish harmonic patterns that reinforced the bearish chart patterns got busted.  It’s a common occurrence, and one that makes charting a lot tougher than it was a few years ago.

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It looks like we’re going to get that yellow neckline backtest after all.  That poor white dot has been hanging out down there at 2086 for a week, looking less and less likely to ever get tagged.  Now, not so much.continued for members... (more…)

Last month was challenging, to say the least.  After a deep retracement of the drop from 2134 to 1810, SPX began a well-formed, falling channel that lasted from Apr 20 to May 19, at which point SPX had completed two large Head & Shoulders patterns. Beginning on May 24, though, things got very “interesting.”  SPX broke back above the H&S necklines and out of the falling channel on a series of algo-driving rallies in oil futures (CL.)

After three straight days of nearly 1% gap openings (yellow arrows above) with very little retracements, the downtrend was broken.  Ironically, CL advanced very little during this period.  The gains came almost exclusively during market hours, after which CL reset for the following day.Most sessions during the month were gap openings, and most of the rebounds featured meltups — my least favorite “market” to chart or trade.  Nevertheless, we managed to generate decent results for the month at 9.49%.

This was a little lower than earlier in the year when we saw more volatility.   But, Isuspected as much when we entered the dangerous period between the previous all-time high of 2134 and the .886 retracement of the drop from it to 1810.

FWIW, June is shaping up to be every bit as “interesting.”

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Yesterday, CL and USDJPY ran into significant resistance.  But, of course, they weren’t permitted to decline until after the market had closed for the day.  So, we’re left with yet another gap down overnight.

CL is finally backtesting the rising channel it broke out of yesterday.

And, USDJPY very nearly nailed our downside target overnight.

Our downside target for SPX remains unchanged — but, again, we had to hold short overnight to enjoy it.

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As we discussed yesterday, the key to new highs was CL breaking out of the rising channel it’s been in since May 18.  Yesterday, it did.  And, SPX had no difficulty in reaching our next upside target.

As expected, however, USDJPY’s rising channel broke down (a much more legitimate occurrence, I might add.)Can stocks maintain their upward momentum with the pair on the decline?

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