It was a strange economic news cycle over the weekend.  The highlights:

• The Boston Fed suggests that QE become a permanent fixture in the central planning toolkit.
• China is openly discussing jumping on board the QE bandwagon with direct purchases of local bonds and adding “unconventional policies.”
• Japanese businesses increase the volume of their opposition to QE expansion and further yen depreciation.
• Japan is downgraded by Fitch from A+ to A.

It’s this last item that, in addition to being chuckle-worthy, has sent the yen tumbling this morning — just enough to spike USDJPY past the SMA100 for yet another test of the rising white channel bottom.

Not to be left out of the party, CL has jumped by nearly 1% in early morning trading.

The futures are naturally higher, currently indicating +7 in pre-market trading.

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USDJPY continues to back off from its latest trip to the .618 Fib…

…while CL provides the cover. As of this morning, however, the cover is flagging.

Yesterday’s spike to new highs seemed to us overdone and premature.  So, we recommended trying a short position on as a short term trade:

We’d be shorting here at 2118.85, with a target at 2090 and stops at 2125 or so.

We still expect the short to play out, but would keep an eye on CL and USDJPY for any signs of a course correction.

On a related note, EURUSD is getting dangerously close to the red channel top.  It now has a decision to make between resuming its decline or breaking out.

The inflection point is quite telling.

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Will the 7th time be a charm?  The sideways channel guiding SPX nowhere since Feb 25 has successfully repelled six attempts at new highs. While the successive highs have been lower, the lows have been higher.  In other words, SPX is constructing a triangle that is entirely in keeping with our current analog.  If the trend continues, the SMA50/20 (2083-2087) should soon be tested.  But, might TPTB have something else in mind besides killing time (and traders)?

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The large purple Fib grid from mid-Oct never retraced to the .618, or even the .500.  The pale blue one from early Feb likewise came up short.  Could it be that the market movers are simply trying to establish the bona fides of the purple midline?

It’s too late to reach the purple .618 to flesh out the bottom of the purple channel.  That ship sailed on Apr 14 (day 245 of our analog.)

The next channel lines that align with interesting Fib levels are the red target (purple channel bottom and purple .500 Fib), the yellow target (.236 purple channel and .618 light blue Fib) and the purple target (purple channel bottom, white 1.272 and SMA200.)

USDJPY has nearly reached the 120.11 level again (at 120.085, close enough to be considered a backtest.) And, CL has an open (trap)door to 54.22, should it decide to avail itself……though the daily chart suggests the white .618 at 64.38 – a natural retreat after tagging the white .886.

UPDATE:  1:15 PM

Though USDJPY has backed off nicely, CL is going nuts today — up nearly 4%.  It’s offsetting the USDJPY drag, and then some. DX is sliding rapidly, but might have found TL support here at 97.34.  If not, the red target at 96.7ish looks good to me.

VIX is closing in on our target of the red channel bottom, but it looks premature.

SPX is testing the all-time high of 2119.59, and will likely slightly exceed it before falling off (probably on Monday.)

Though the 1.618 is only 18 points away at 2138, I don’t think SPX is ready to take a run at it yet — not without the support of USDJPY’s SMA200.  I’d be shorting here at 2118.85, with a target at 2090 and stops at 2125 or so.

CL closed yesterday atop the purple midline for support, then slipped down overnight to tag the .786 Fib and is backtesting the midline as resistance this morning.This would be a good opportunity for CL to flesh out the rising purple channel with a dip to the .618, but that would likely put a ding in the “every day is better than the last” meme of this “market.”

USDJPY is masking CL’s weakness in order to maintain green shoots in the futures overnight.  As expected, it didn’t make it through the SMA50 yeaterday.  But, it remains inside the rising white channel and within striking distance of 120.11 — which is enough.

Perhaps the most telling chart of the whole farce is VIX.  Channel tops and bottoms are made for bouncing.  Yet, VIX has been clinging to the bottom of the rising purple channel for a full two weeks.

In an unrigged market, one might say it represented “coiling” — gathering momentum for a strong surge higher.  In this “market” it represents keeping the index at a level from which it can easily be monkey-hammered lower in order to prop up stock prices.

And, it is on this note that I must diverge.  No doubt many have seen the news regarding one Navinder Sarao, alleged flash-crasher extraordinaire.  Zerohedge has done a good job summarizing the ins and outs of his arrest in Britain and the ongoing US extradition effort.

In short, Sarao is being charged with masterminding the May 2010 flash crash via spoofing, a means of manipulating securities prices by submitting hundreds or even thousands of market-moving orders and quickly (within nanoseconds) withdrawing them before there is a chance of them being executed.

Spoofing has been practiced by countless high frequency trading firms within and outside of the US for years. It is the scourge of the industry, and it is easy to see it in action on practically any given trading day.  Furthermore, it is practiced by major central banks themselves both directly and via their proxies — but, always in an effort to increase stock prices.

Now, Sarao might indeed be guilty as sin of contributing to the flash crash.  But, he most certainly was not the only player.  Nor, was he likely the largest.  FINRA and the CME could very easily put a stop to spoofing any time they like. But it’s one of the primary tools for keeping stock prices rising, and it generates enormous trading revenues for CME.

So, don’t look for any meaningful changes as a result of Sarao’s arrest.  He is a scapegoat who will likely divert attention from the very real and very dangerous practices at work in the “markets” every day — practices that will inevitably lead to more flash crashes down the line.

Coming up, a look at SPX and the progress of our analog.

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USDJPY provided a second ramp job in a row last night, shooting up past the SMA100 and testing the SMA50 — only .32 below the .618 at 120.11.  Note that last night’s move also reenters the broken white channel dating back to December 2014.

The futures like what they see, spiking another 12 points to test the all-time highs.  But, until the red, dashed trend line from October is broken as it was earlier in the month, ES is still in backtest mode. And, according to our analog, it’s premature.  In other words, I wouldn’t chase this move.

The Fed has gone to great lengths to reassure “markets” that interest rates won’t be increasing very much very soon.  From Bloomberg:

Policy makers have ruled out an increase at the next meeting of the Federal Open Market Committee, April 28-29. New York Fed President William C. Dudley stressed on Monday that once they start to lift rates above zero, “we will simply be moving from an extremely accommodative monetary policy to one that is only slightly less so.”

Our view continues to be that there will be no interest rate increase in 2015, in September or otherwise.

Note the 10-yr note yield action over the past month.  The ECB has created conditions where some homeowners with adjustable, LIBOR-based mortgages are being paid by banks to borrow.

Earlier today, the euro interbank offered rate – Euribor – dropped below 0% for the first time, meaning banks are now being paid to borrow.

Does no one remember the trouble that developed about 7 years ago when money got a little too easy and banks started doing some pretty ridiculous things with it?

Meanwhile, the US 10-yr rates are being propped up at 1.85% to give — just like talk of higher rates — the appearance that the US markets are healthy.

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Getting a bit of an early start this morning due to traveling…

Friday saw the repercussions of USDJPY continuing to operate below the SMA100 as our analog predicted.  USDJPY itself hasn’t fully given in to the downside.  The .618 at 118.02 remains the most obvious target.  It’s not much of a drop, but the potential implications for the yen carry trade are huge.

Unfortunately for bears, CL continues to take up the slack — propping up stocks with no difficulty.

Friday saw a decline below the 1.272 at 57.43, but the ramp job in the past 24 hours, as usual, has driven futures higher.  The 60 min chart:

VIX and TNX continue to play footsie with bearish chart patterns — hinting but not committing.  TNX can’t seem to get below 1.85ish…

…and, while VIX popped higher on Friday, it hasn’t even broken out of the falling gray channel.

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It’s now been three days since USDJPY closed above its 100-day moving average, and the strain is starting to show.

The S&P 500 futures were off 20 points overnight, which was finally enough to send USDJPY scurrying higher in plunge protection mode.

CL gapped higher, of course (now 37% off the Mar lows) but it hasn’t been enough to stem the overnight losses.

SPX’s first test will be the TL from December.  If that doesn’t hold, things could get pretty interesting.

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The big news yesterday was CL tagging our upside target during the session.  It was enough to prop up SPX, but not break through the former high.

CL spiked even higher overnight to keep the futures in check, but is now backtesting the red 1.618 with an eye toward moving lower.

The daily chart shows the bounce off the mid-March lows.

It has been necessary in order to offset the weakness that would otherwise be inflicted by a sputtering USDJPY — which closed below its SMA for the second time yesterday.

UPDATE: EOD

USDJPY loitered around the channel bottom all day, managing to close below the SMA100 (119.23) yet again.

The only thing that kept SPX from tanking was — yep, you guessed it — another ramp job in CL.

So, if you notice it takes a few more bucks to fill up the Family Truckster this weekend, at least you can take solace in the fact that you helped the S&P 500’s losses remain tiny at only 1.64 pts.

CL is now 30.4% higher in the past month, 14.6% in the past week alone — all in the face of daily news blurbs heralding huge excesses in production and storage supply.  Gotta love an unrigged market…

GLTA.

On the surface, it looks like SPX bounced at the 10, 20 and 50-day moving averages yesterday — a normal and understandable occurrence.  But, the bounce came at 2083.24, and the nearest SMA was at 2082.  It seemed that USDJPY’s plunge would surely prevail.  After all, it’s been a long, cold winter for bears and a rising yen is their best hope for a meaningful thaw.

Unfortunately for the bears, what the yen gaveth, CL taketh away.  With yet another rally — this one only 2.7% in a few hours time — CL-fueled algos erased the morning’s red ink and left SPX green on the day.

Likewise, last night’s drop in USDJPY would look promising — if not for another overnight ramp job (2.6% this time) in CL that has taken it back above the white 1.272.

It’s yet another example of the “heads I win, tails you lose” scheme that’s setting stock prices lately.  Drops in USDJPY that might have driven stocks lower only a few months ago are now offset by rises in CL — transmitted by the relatively lower US dollar that joins them at the hip.

The only real risks to the set up are the euro and the carry trade unwind.  So far, the euro has been propped up well enough to keep the dollar on the defensive. That will change if it resumes its decline to our .9898 target.

The carry trade unwind is a potentially more serious problem for bulls should the yen’s tumble be over.  But, judging from the past few months, keeping USDJPY going “sideways” seems to work nearly as well as keeping it on the rise.  And, in the end, Abe and Kuroda will ease even more.  They truly have no other choice.

What if the euro tumbles more, the yen strengthens and oil can’t be propped up anymore?  Do bears have a chance?  Odds are TPTB will simply fall back on VIX, treasury and index futures manipulation to achieve their rallies.  How cool is that!?

Bottom line, our analog should continue to play out as expected.  Sadly, I see nothing on the (artificial) horizon to upset it.

UPDATE: 12:00 PM

CL just nailed our intermediate target of 55.78.  If it reverses here as it should, then USDJPY will have to pick up the slack in levering SPX higher.

At the moment, though, USDJPY is looking rather sickly.  And, the euro ain’t helping much.  Maybe we’ll get a dip after all?

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SPX reversed where we expected.  From yesterday’s member section:

Look for SPX to run into a brick wall at 2106.95 or so.  From there, it should be downhill.

The culprit, as anticipated when this analog first became apparent: USDJPY. [see: A New Analog Mar 27.]CL, however, continues to mitigate USDJPY’s effects.  Remember, the yen can weaken only as long as CL remains under control.

Conversely, a strengthening yen will allow CL to rebound (and the dollar to weaken) — as long as the euro also strengthens — which it has since hitting the .886 we discussed yesterday.

Our price targets for SPX remain in place, with the most likely timing either today or tomorrow.

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