We left off Friday [see: A New Analog] discussing the role USDJPY played during the severe 2011 correction, and the way it subsequently provided an assist whenever necessary during SPX’s recovery.

USDJPY’s first break above the SMA100/200 on October 22 was almost enough to keep SPX’s trend (red, below) from Oct 2011 alive.  Two weeks later, when USDJPY dipped back below the SMA200, SPX broke down further — falling below the purple TL of support.

If left to its own devices, the S&P500 would surely test the gray channel .236 or even bottom — which meant posting a loss for the year.  It was the last thing Wall Street needed.

The second push above the SMA200 on Nov 14 did the trick.  Having reached a .618 retracement, SPX popped back through all its broken moving averages and scampered back up to the gray channel midline — which it then backtested before falling off in the final week of the year.

At this point, it looked likely to head down after the first of the year and complete a Gartley or Bat Pattern at 1311 or 1290.  After all, it never tested the channel bottom or even .236 line following that bearish plunge in October/November.

And, it probably would have if USDJPY hadn’t gone on a tear over the low-volume holidays — gapping higher on Dec 26 after topping both the Mar 2012 and then the Apr 2011 highs, and gaining 4.2% in only a week.

SPX, in turn, shot up 64 points (4.6%) in two days (Dec 31 and Jan 2.)  USDJPY kept the pressure on until the gray channel midline and then the 1474 high from Sep 14 were broken.

To anyone with any charting experience, that Nov 16 low looked as phony as a three-dollar bill, as did ramping SPX up through major resistance on the lowest volume days of the year.

But, it left an interesting opportunity for the bulls.

continued for members…

Rather than allow prices to bounce back down to the channel bottom, why not create a new, steeper channel?  Using the 2011 low and the Nov 16, a new rising channel was established within the gray channel.  It can be seen below in purple.Thanks to the USDJPY’s continuing rise, this new channel was incredibly effective — so much so that it eventually enabled SPX to break out of the gray channel — where it remains today.

While SPX has tested the top of the purple channel countless times, it has only tested the bottom twice since its inception: November 2012 and Oct 2014.

The chart below (also posted on Friday) shows USDJPY’s first major challenge following the 2011 liftoff.  On Jun 6, 2013, USDJPY lost the rising white channel bottom and dropped down to test its SMA100. It seems like a moment of weakness for the pair.

SPX responded by dropping back to the purple channel midline — where it bounced 56 points over the next two weeks.  But, USDJPY wasn’t done yet.  Three sessions later, it closed below the SMA10, lingering there several days before a lackluster recovery that couldn’t seem to get out of its own way.

Why, after all the ramping, was it fizzling now?  First, because the SMA100 had finally caught up with prices, there was something other than channel support to prop up prices.

Secondly, SPX has popped through the 1576 high from 2007 without looking back.  It needed a backtest, at least.  And, that’s exactly what USDJPY provided.  On Jun 24, 2013, SPX dipped down to 1560, even closed at 1573.09 — slightly below the previous high.

It was a head fake, of course.  USDJPY dropped through its SMA100 only to push stocks temporarily lower.  SPX fell a substantial 7.5% in about a month — only to tag its SMA100 again and backtest the previous all-time high.  Both had very bullish implications going forward.

USDJPY essentially went sideways for the next four months while its SMA200 slowly caught up.  It finally tagged the SMA200 on Oct 7, 2013 — 351 days since the last touch.  And, it closed right at the SMA200 on Oct 24 — 366 days since the last time.

Having finally arrived on the scene after a year and a day, you’d think the SMA200 would have something important to do — something so challenging that you’d need the support of a 200-day moving average to accomplish.  It didn’t disappoint.

USDJPY stayed ahead of the SMA200, eventually breaking out of a four month-old triangle……in order to break SPX out of the gray channel it had been in for almost five years.  It wasn’t done.

With the important 1.272 Fib extension of SPX’s 2007-2009 drop from 1576 to 666 coming up (the Big Butterfly) at the end of the year, USDJPY would be called on again to provide the necessary lift.

Now, with USDJPY having recently tagged its SMA100 again for the first time in 227 days, and the SMA200 steadily approaching, I can’t help but wonder whether the entire process will be repeated.

To recap the previous episode for USDJPY:

• Day 0, Oct 22, 2012 —   USDJPY breaks out SMA100 and SMA200.
• Day 23, Nov 14, 2012 — second tag and lift-off
• Day 227, Jun 6, 2013 — USDJPY finally tags SMA100 again.
• Day 232, Jun 11, 2013 — USDJPY closes below SMA100
• Day 234, Jun 13, 2013 — USDJPY bottoms out at 93.78.
• Day 351, Oct 7, 2013 — USDJPY tags SMA200 for first time since Oct 2012
• Day 366, Oct 24 2013 — USDJPY closes at SMA200.

SPX on the other hand, gapped higher the day after the first SMA100 tag and rode a rising TL for 56 points over eight more sessions until it cracked.  When it did, SPX fell 81 points to tag the purple channel .236 line and test the SMA100 on Jun 24 (day 245.)

It was a very volatile next few months, with a 150-pt five week rally, followed by a series of 80-pt gains and losses leading into Day 366 — when USDJPY’s second bounce at its SMA200 (liftoff) occurred.

In this time period, this would suggest SPX hits an interim high sometime around Apr 6-7, and then bottom out around Apr 14.  That would touch off a zig-zag higher, that takes advantage of USDJPY’s SMA200 tag on either Jul 29 or Aug 14 (or both) that drives SPX up through strong resistance.The resistance would have to be the 1.618 Fib at 2138.  Remember, this is the 1.618 extension of the drop from 1576 to 666 between 2007 and 2009.  It’s the biggest pattern on the entire chart — a well-formed Crab.

It’s the interim lows between now and then that are tricky.  I see quite a few possibilities, some of the more likely of which are shown above.  I’ll continue working on the timing and price levels, and will update this thread when I have something definitive.

More later.