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After all the drama surrounding the Fed’s 1/4% hike yesterday, the charts still point out one truism.  It’s still all about the yen carry trade and, specifically, the USDJPY.  As long as it’s rising, SPX will have the wind at its back — no matter how little breadth, how sketchy the fundamentals, how many miniscule rate hikes.

So, any analysis of the “market’s” next moves starts with a look at what USDJPY is going to do.

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FOMC Flameout!

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If this were any other day, I’d say TPTB have the “markets” set up for a nice spike.  USDJPY has been pumped up over the SMA100 and SMA200 (now virtually on top of one another)…… CL has bounced sharply off the falling red channel bottom…… and, ES was ramped 12 points higher overnight.But, as we know, it’s not just another day.  It’s the day the Fed gets to demonstrate just how wise they are, how much control they have over the vagaries of the markets.  After all, they’ve tripled the S&P 500 over the past six years.  We should trust them to triple it again, and again, and again.

The only problem is that the mechanism that produced all those gains is getting very long in the tooth.  Though interest rates are a component, the mechanism that really matters is still the yen carry trade.The USDJPY has gone nowhere over the past year since arriving at current levels.  Hence, stocks have gone nowhere — particularly since completing the Big Butterfly Pattern in May.  At the time, we noted it was the last big Butterfly, and it ushered in a nice sell-off as we expected.

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Yesterday was a strange day, with SPX tagging our downside target (after an 18-pt spike that instantly reversed itself) and then going on a 25-pt tear led by ramp jobs in both USDJPY and CL.  It was just what the doctor ordered.  From our initial post:

The futures gave up almost 30 points overnight, but signal a small gain at the open.  SPX needs all the help it can get, as a drop through the white channel bottom would likely mean 1991-1996 for starters.

Today should be about positioning: the bulls for a breakout and bears for a breakdown.  With the futures up 22 points before the open, it’s pretty clear who has the upper hand in the after hours.  But, it’ll be interesting to see how things go once the rest of the world arrives and thinks long and hard about event risk.

Note that USDJPY bounced off the bottom of the channel from 2012 yesterday.  The two previous bounces were Aug 24 and Oct 15 — not shabby entry points.   Today, it’s all about the 100 and 200-day averages.

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NDX nailed the initial target identified in our September 24 update where it got a strong bounce that took it all the way back to the broken purple channel’s midline and a new all-time high.

This is pretty typical of NDX, which plays fast and loose with chart patterns and Fibonacci patterns — especially when it comes to popping up through resistance.

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In our September update [see: Sep 14 NG Update], we identified some bounce targets that would naturally follow the completion of a Bat Pattern in natural gas.  But, we also noted that NG, like oil, was being suppressed in order to facilitate the yen carry trade.

But, like CL, NG is being artificially suppressed in order to facilitate a cheaper yen.  When it comes to Japan, it remains to be seen whether central bankers can handle that kind of inflationary pressure.

If, instead, they wish to manipulate it lower, the white channel bottom down around 2.00 would make a nice downside target.

Six weeks later, NG tagged that downside target — dipping slightly below it to 1.948, a stunning 30% drop.  The 26% bounce to 2.48 in mid-November was nearly as impressive.  When NG retraced a 78.6% of that rise last Friday, I didn’t think too much about it.  It was due for a bounce.But, this morning, NG gapped down to 1.862 — a low not seen since March 29, 2009, a few weeks after stocks finally bottomed out.

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I used to really love VIX as an indicator of future market moves.  For the past several years, however, central banks and their proxies have been using it as a tool, bashing it every time they wanted to goose stocks.

Still, there’s value in charting it, if for no other reason than to understand what games they’re up to — or, when they’ve lost control.

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Gold’s a touchy subject in the blogosphere.  I have nothing against stacking.  Holding some of the shiny metal — whether for fun, inflation protection or the coming zombie apocalypse — probably makes sense.

But, it’s the GC futures we concern ourselves with, here. And, most serious gold bugs will tell you that the futures and ETFs are not the real thing.  I get it.

Central banks have been hammering it for years, trying to convince investors and preppers alike that it’s not worth holding and, in any case, is not a viable substitute for those pretty pieces of paper they print down in the basement.

It’s not hard to see when they came to realize that gold’s ascent was a problem.  The only challenge has been figuring out when and where it’s going to bounce along its path.

In our last update with GC at 1145, we noted it had the potential to break above a TL from last January and tag 1178 or 1198.  It did break out, reaching 1191.70 about two weeks later.

But, then it fell back through that TL to another in a long series of new lows — confirming what everyone who charts it suspected: it’s just as manipulated as everything else.  That doesn’t mean, however, that there aren’t some good trading opportunities ahead.

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I’m going to focus on updating a variety of charts today.  The first, of course, is SPX.  Like DJI, it is perched on the edge of important support — the loss of which portends significant losses in the next few days.

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In our October update on the Dow, I noted how the white .786 Fibonacci retracement at 17,712 represented not only a legitimate harmonic reversal point, but the intersection of rising and falling channels.

But, I also reminded members that:

…the Dow is one of the least reliable indices to forecast using patterns and Fibs.  It’s just too easily/heavily manipulated.

The reminder was timely.

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When we examined the likely outcomes of next week’s FOMC meeting yesterday [see: Now and Then] we devoted a couple of column inches to the possibility that Wall Street would throw a fit, much like it did in October 2014, January 2015 and August 2015, to demonstrate how sensitive it was to the taking away of the proverbial punch bowl.

Having said all that, there is one other possibility that shouldn’t be completely ignored.  As we’ve seen in the past, a sudden, severe plunge in stocks can be very effective in changing the FOMC’s plans.

Were SPX to drop to, say, 1920, 1856 or 1823 in the next several sessions (6.4, 9.6 or 11.2%), there’s a pretty good chance that the Fed would delay actual implementation of a rate hike.

The words seemed rather silly as I typed them, particularly since every tiny dip was immediately bought yesterday.  With another of those now-routine 1% pre-opening plunges  facing us this morning, they seem a little less silly.

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