We all knew it was happening — in reality if not in name.  Today, it came one important step closer to being official.

Shortly after Japan issued JGBs, the BoJ scooped in and bought them (‎¥400 billion worth) — bringing their ownership close to 50% of all outstanding 10Ys.  In other words, the BoJ is now that much closer to officially financing Japan’s staggering deficits.  Normalizing, indeed.

The effect on the USDJPY wasn’t all that significant.  It was more the realization that the BoJ has had to resort to extreme measures — something Kuroda swore he’d never do — lest they totally lose control.Together with the BoE hiking by 0.25%, it was more than the algos could bear.  Futures are off 14 points and have completed the H&S Pattern we’ve been watching develop.

As oil and gas continue tumbling toward our downside targets, there should be more downside for stocks ahead.

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Thanks to continuing yen weakness (due to the ongoing consternation in the Japanese bond market)… …and another timely shot across the bow in VIX……futures are back in the green, with yet another chance to break out even as RB and CL hurtle toward our downside targets.Can the algos continue to ignore the damage being done?  Perhaps they’re focused on AAPL, which rose to new highs after solid earnings and guidance after the close yesterday.  With its 2.24 in the rear view mirror, can AAPL break out above the troublesome channel top, or is the COMP model still in control — with a tumble due early next week?

And, then there’s the FOMC.  With currencies and rates right where they want them, there’s little chance they’ll ruin the fun.

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As expected, the BoJ took the path most beneficial to stocks — leaving rate targets where they’ve been (negative short-term rates, the 10Y at 0%) and mumbling something about being more flexible the future as they continue to strive for 2% inflation.

The actual goal, of course, is to prop up stocks while they try to find a way out the equity trap into which they’ve put themselves.  This means further deflating the yen, which sent the USDJPY higher, which propped up stocks overnight.This is in line with our outlook on the yen, and facilitates the euro outlook as well.  We’re completing our tenth week of currencies consolidating around a tightening range.  It’s also known as coiling…as in that thing a snake does before striking.

Were the FAANGs not flaking, stocks could continue to rally in such an environment.  But, the FAANGs are indeed in trouble, with several of them in real danger of breaking down.  When we last took a look in April [see: Is the Market About to be De-FAANGed?], things were looking dicey.  Now, they look downright scary.

We’ll take a look at them individually and see whether they have further to go.

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The BoJ continues to battle what’s left of the market over the rate on benchmark 10Y bonds.  Earlier today, it again stepped in to put a lid on rates at 0.10%.

Some analysts assume Kuroda will take steps to normalize rates in order to relieve pressure on banks and create some headroom for future easing.  To this, I say “fat chance.”

First, with its enormous debt burden, Japan needs higher rates like a fish needs a bicycle.  Second, higher rates would bolster the yen which we all know craters equities.

While it’s possible Kuroda will utter some mumbo-jumbo that sounds logical enough, there is simply no way he will do anything to endanger the patient — already on life support.  the only analysts who don’t understand this are the ones who don’t understand the yen carry trade.

The USDJPY has already backtested the broken rising channel from 2010.  Yet, it has also backtesting the broken falling channel from 2015.  As such, it is truly in limbo.  And, as long as central bankers can maintain equity values by doing essentially the same thing they’ve been doing, they will.

Speaking of which…guess which algo bait helped stocks recover from Friday’s tumble?

Algos weren’t too thrilled with CL’s breakdown, but are willing to forgive and forget now that it has tacked on a couple of percent (as usual, in the after-hours.)And, as always, VIX was only too happy to plunge in the last few minutes of trading.

All together, it’s a delicate balance that has the algos seeming a bit wary.  With more and more carbon-based investors reigning in their equity exposure, can TPTB keep all these plates spinning?

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Q2 GDP came in slightly below consensus at 4.1%.  The good news is that it’s a healthy number, certain to earn its way into headlines (and presidential tweets) from now until at least Nov 6.

The bad news is that, thanks to the “good” and “easy to win” trade wars, at least 1% of the print was attributable to accelerated exports – primarily soybeans.  In other words, it was borrowed from future quarters.  It’s safe to say a good chunk was also attributable to much higher oil and gas prices.

Futures are flat – still loitering (3rd day) within a few points of the Fib .886 retracement.With oil’s rising wedge looking ready to pop and the dollar still under pressure, can stocks still break out?

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Today should be very interesting.  Will investors focus more on Facebook’s faceplant……or the nominal progress on trade issues?  How about the disappointing Durable Orders?  And, what about the ECB’s obfuscation?  Could be some interesting cross-currents — made even more interesting by the fact that ES/SPX reached our upside target yesterday. continued for members… (more…)

VIX continued to play cat and mouse with its 10-day moving average, yesterday, leading to generally positive gains for stocks.Those gains have faded, however, and futures are slightly negative in the minutes leading up to the open.  Dollar weakness continues to be a headwind…

…and the yield curve continues to steepen.With SPX falling a few points short of our upside target, we could see it take another run today.

It’s worth noting that Deutsche Bank, which reached our 10.30 target back on Jun 27, is closing in on our 13.10 target.  This would mean rejoining the purple channel from which it broke down in May [see: DB: On the Ropes.]   This is an important test for DB and, by extension, for the ECB.

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Perhaps the Jackson 5 said it best…

A-B-C,
Easy as 1-2-3
Ah, simple as do-re-mi
A-B-C, 1-2-3,
Baby, you and me

Alphabet is soaring in the after-market, but coming up on important Fib and TL resistance.  Can anything stop this behemoth?As one of the 10 stocks which contributed over 100% of the S&P 500’s YTD gains, it’s one to watch.

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