SPX had no trouble reaching our initial downside target yesterday, thanks in large part to CL’s cooperation. CL plumbed new lows, as expected, bringing the total decline (so far) since our top call at 50 to 11.5%.
USDJPY was no slouch, reacting to the (withheld) news that Kuroda has (had?) no intention of unleashing a massive addition to its already ineffective QQE program.
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In yesterday’s post, we noted that the USDJPY had gone as far as it could without a breakout. Indeed, overnight, the BoJ flinched. In an interview recorded on June 17 but, not so surprisingly, not released until today, Kuroda confirmed that there will be no 20 trillion yen increase in QQE and, most definitely, no helicopter money.
Thus, the remarkable runup in USDJPY since the post-Brexit 98.99 lows has been undone, right? Not exactly.
Regular readers know that the absence of additional QQE doesn’t mean there won’t be plenty of additional currency manipulation. And, remember, Kuroda is famous for his head fakes — saying one thing and doing the opposite a week later.
Let’s also not forget that it’s easier and cheaper, anyway, to manipulate other, more powerful algo drivers such as oil futures. Witness yesterday’s spike in CL. 
While the talking heads attributed it to a bullish EIA report, it commenced over an hour before the EIA data was released — as S&P 500 futures were plunging. Just another day at the office for central banks.
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It seems hard to believe that S&P futures are up at all, given that CL has dropped like a rock. But, USDJPY continues to hint at a breakout, which is enough to make the algos quiver with anticipation.
Is the BoJ ready to go all the way, or is this another head fake as in late May?
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Final day of my road trip… I’ve had a great time seeing clients, many for the first time. Many thanks for all the hospitality and lively discussions! Having spent much of my life in New York and Boston, I’ve thoroughly enjoyed visiting many smaller communities and getting a better sense of life outside the big cities.
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SPX’s long-awaited pause appears to finally be here, though as noted on Friday the SMAs aren’t quite in position for much of a decline.
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I’ve been traveling for the past two weeks, so haven’t yet had the chance to fully express my dismay (but, not surprise) at the way TPTB have snatched new highs from the jaws of the Brexit’s sell off.
As I detailed on June 22 in The Eve of Destruction, the EURGBP and SPX are highly inversely correlated. A sharp rally in EURGBP sends stocks plunging. And, a sharp decline in EURGBP sends stocks higher.
A successful Brexit, the theory went, would make the GBP plunge — meaning EURGBP would rise and stocks would sell off sharply.
This was the chart I posted on June 22, showing upside targets for EURGBP of .8411 and .8599.
As it happened, EURGBP had no trouble reaching those targets. In fact, .8599 was reached on Jul 6, over a month ahead of schedule. It was so ahead of schedule as to represent a breakout of the rising red channel.
We all know the punchline. The drop in SPX was sure and swift — 122 points in two days. The plunge was just as swiftly erased by massive central bank intervention. It wasn’t difficult, given that it around a very low-volume holiday week. It was done in the usual way: USDJPY and CL ramp jobs.
From the Jun 22 post:
To be sure, a little extra pain at the pump (for the have-nots) is NOT going to stand between TPTB and their inflated balance sheets. If EURGBP starts screaming higher and stocks start plunging, don’t be surprised to see CL pushing higher. I have a 54.76 upside target that could easily come into play if the Brexit happens.
Likewise, the BoJ has a long and distinguished history of throwing its citizens under the bus when necessary to prop up stocks [see: The Yen Carry Trade Explained.] Their need is a little more pressing, in fact, since they have borrowed trillions of yen in order to “invest” in global equities. The USDJPY recently bounced at an important Fib level, and there’s very little in the way of overhead resistance.
Crude’s rally was short-lived, but effective (though, the channel in which it’s been rallying since Feb 11 broke down last week.) USDJPY, which long ago broke down through anything resembling a bullish channel, managed to rally at all the right times (while the “market” was open.)
There were other tools at work, of course. But, the net result is that SPX managed to rally while EURGBP was also rallying. In a sharp departure from the usual relationship, they are again positively correlated — suggesting that a rapidly depreciating GBP is good for stocks.
This is utter nonsense, of course, as are so many other correlations that have broken down over the past several years. It’s what happens when central bankers and their lackeys manage stock prices as they’ve been doing.
This is no surprise to regular readers, as I have posted ad nauseum about the games central bankers have been playing for years. New guy? See: How They Did It, one of many posts illustrating the technique.
But, it is depressing for those of us who were brought up in the business thinking that stock prices were a logical reflection of the risk and reward inherent in an open and transparent marketplace. Those days are long gone.
The melt up continues, though TPTB might allow a pause or even that overdue pullback in response to the atrocious attack in Nice, France.
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More of the same. Today’s forecast is exactly the same as yesterday’s, with a little more certainty thrown in regarding a backtest.
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SPX has cleared most of the obstacles to unfettered new highs. USDJPY continues to perform contortions that only a central banker could love. While, CL continues to be a potential drag.
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Technically, SPX reversed yesterday at the 1.618 extension of the drop from 1576 to 666 between Oct 2007 and Mar 2009. In an unrigged world, we’d call the move from 1810 to 2143 a truncated 5th wave and get ready for a massive sell off. 
But, with more and more talk of helicopter money in Japan, and rapidly rising CL and USDJPY, it’s hard to imagine.
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