We’ve had a nice run with EURUSD.  Back on February 29, we forecast a bounce on the bottom of a rising red channel.  Two days later, we had a near miss.  A week after that, the pair took another swipe at it before experiencing the biggest intraday reversal of the year.On April 18, we forecast a spike up to 1.1577, the top of the red channel, and were rewarded with a sharp reversal there on May 3.    With EURUSD having shed over 4% since then, what might be in store for the beleaguered pair?

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You might be one of those investors who cares nothing about bonds.  With the 10-yr failing to even keep pace with inflation, why bother?  Because, after decoupling in 2014 and part of 2015, stocks and bond yields have mostly moved in tandem for the past year.  Ignore bond yields at your own peril.

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In our January 13 update, I noted that TNX was nearing potentially important support.

Note the white dot at 20.21.  This is not only a key Fib level (.618), but the bottom of a TL off the Jan 30 lows.  As support goes, it’s of average strength.  But, it likely lines up with our 1882-1887 SPX target.  So, I’m giving it the benefit of the doubt.If the trend line breaks, then the next major support isn’t until 1.90 or so– the Aug and Sep lows — which would probably mean SPX 1882-1887 didn’t hold either.

TNX reached 20.21 two days later, bounced for a few days, then broke down below that white channel bottom. Needless to say, SPX 1882-1887 didn’t hold either.

SPX plunged 138 points over the next two days (the thin, purple line.)  Only when TNX bounced back above the channel bottom did SPX recover at all.TNX eventually found support, but it’s been unbelievably wishy-washy about holding that support.  If I didn’t know any better, I’d say TPTB are propping it up.

But, that would mean press conferences, interviews, sound bites wherein Fed presidents talk up the probability of an imminent rate hike, even when it seems contrary to an unending stream of weak economic data.  Come to think of it…

The long-term picture is one of the charts that, back in 2013, had me absolutely convinced that SPX was heading lower.

Previous plunges in interest rates had obviously accompanied plunges in stocks.  The logic is straight forward: stock market crashes drive investors into bonds, which bids up the prices and down the yields.  The 2000-2003 and 2007-2009 crashes are the obvious ones.But, TNX experienced a number of less dramatic reversals that accompanied smaller corrections: Apr-Jun 2010 (-15.4%), Jul-Oct 2011 (-20.1%) and Mar-Jul 2012 (-9.9%.)

In September 2013, the 10-yr tagged the yellow trend line from June 2007.  But, SPX was still a little shy of our 1823 target.  So, we forgave TNX when it bounced slightly higher to nail the .618 Fib at 30.13.  As it turned out, SPX nailed 1823 at the same time.  It was a beautiful setup for shorting.

Sure enough, TNX plummeted almost 50% — from 30.36 to 16.51.  SPX, on the other hand, went higher.  A lot.  By the time rates were done dropping, SPX had climbed nearly 15%.  Those bears, like me, who hadn’t noticed the growing influence the yen carry trade was exerting on stocks, did not have a good year.But, all manipulated things must come to an end.  The BOJ stopped devaluing the yen, and the yen carry trade is a mere shadow of its former self.  So, when TNX began another leg down a year ago, stocks followed along just like in the good old days.   Instead of rising 14.8%, SPX fell 14.9%.

The last stretch of the decline occurred when TNX plunged below our 20.21 line in the sand (the yellow arrow.)  As mentioned above, that led to a 138-pt (7%) decline in SPX.  It was followed by a 108-pt bounce when TNX popped back above support.  But, when the bounce failed two days later, SPX plunged 137 points.

Fortunately for bulls, TNX ran into strong support at the .886 retracement of its rally from 13.94 in Jul 2012 to 30.36 in Dec 2013.  It was the same day USDJPY and CL bottomed, so stocks had a lot of help in kicking off a strong rally.

While SPX rallied strongly for several months, TNX ran out of steam after just one.  It has since put in two lower highs — hardly the sort of behavior one would expect if higher rates are, indeed, right around the corner.

On the other hand, it’s hard to miss the triangle pattern setting up over the past several months.  IMO, it’s not so far off the lows that it qualifies as a legitimate pennant pattern.  But, it obviously represents a coiling of sorts — exactly the sort of pattern one would expect with a rate decision coming up next month.

Stay tuned.

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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