A lot of people get that wrong.  They talk about drilling for oil.  But, what’s the point, when you can just spoof for it instead?

[If you’ve missed our previous discussions of spoofing, the WSJ recently put out a nice article and video discussing it in some detail.]

Crude light stumbled badly yesterday morning after the news came out that oil inventories had risen at the fastest rate since 2001.  It dropped below $50, breaking a little trend line that it’s been climbing since the 27th.

Stocks were none too happy with this development.  SPX promptly fell about 23 points to tag our target from Monday — the 20-day moving average.

If the past is any indication, SPX isn’t quite ready to make its next major move….l’m looking for SPX to move lower before moving higher, with the likely target being a test of the SMA20.

Since oil’s drop had caused stocks to also drop, it stands to reason that a recovery in oil would also trigger a recovery in stocks.  At least that’s the way algorithms work.

Sure, there is some economic logic baked in there somewhere: rising oil prices eventually contribute to higher profits in the oil complex.  But, generating higher profits takes more than a few minutes. And, stocks were getting beat up pretty badly.

Enter the oil-fueled algorithm and its vehicle: the spoof.  As Nanex’s Eric Hunsader points out, oil is being kept afloat by orders that are placed by those with no intention of being filled.

Like ES, USDJPY, and other financial instruments/assets, it’s an effective way to temporarily boost prices.  Done cumulatively, it’s an effective way to keep prices on an upward track — even in the face of horrid fundamental supply/demand news.CL, having led stocks lower, suddenly spiked 5% on the very worst day of fundamental supply/demand news in 14 years.  Stocks — or rather the algos that drive stock prices — were only too happy to respond.

Oil now yields the floor to USDJPY, which spiked above the .618 at 120.11 this morning in order to save stocks’ bacon today.

EPILOG: 4:30 PM

To believe any of the above, you’d have to accept that TPTB are taking concrete steps to manipulate oil, currencies and securities prices.  It would mean price action that, on its face, is designed to prop up SPX.

Earlier, we talked about the importance of 120.11 for USDJPY (the yellow, dashed trend line.)  Don’t look now, but USDJPY not only slipped just past it, but closed slightly above it.

And, CL, which needed to maintain the rising red trend line from a week ago…  Guess what?  It could hold, but my money is on the fundamentals mattering this time.  In other words, I’d revert to short here for our 41.14-42.41 target range.

SPX acted pretty much according to plan yesterday — getting most of the way to our 2093.55 target before CL and USDJPY panicked and bounced higher into the cash close.  From yesterday’s members’ section:

My hunch is that we’ll see SPX decline to our 2093.55 target — particularly if USDJPY declines to flesh out the rising white channel (118.75ish, depending on when) or lower.

It’s a continuation of the theme posted on Monday:

 If the past is any indication, SPX isn’t quite ready to make its next major move….l’m looking for SPX to move lower before moving higher, with the likely target being a test of the SMA20.

CL has continued higher, but ran into the channel midline that might hinder further upside.

While USDJPY — after backtesting the broken red TL — has continued lower.

Assuming we get some follow-through this morning, what next?

If 2093.55 fails, then the SMA20 at 2088.3 is the next level of support.  That would leave an interesting potential H&S Pattern in place, with the dashed white line representing the SMA20 as the neckline.

updated chart in a few…

UPDATE: 9:37 AM

I think the target will be wherever SPX happens to be when USDJPY reverses and heads higher.  Currently, 119.08 looks like the most obvious target.  It’s on the thin red TL up from 118.33 and would intersect with the purple .618 Fib.

Note that a full .886 retrace of the rally from last Friday would hit the red target at 118.75 we identified yesterday as appealing.  Given that SPX is selling off pretty nicely with a minor downturn overnight, we can only imagine how big an impact that might have.

UPDATE:  9:54 AM

SPX has reached 2090.55 so far.  At this point, the neckline is plenty flat enough.  And, it has nailed the larger purple channel’s .786 line and very close to the small purple channel’s .236 line.

[A drop by CL to 50.17 would help SPX reach our actual target; but, this is probably low enough to get a bounce — at least into the european close.  It’s worth keeping an eye on.]

If the H&S should play out, it would target around 2060 — which is coincidentally (or not!) the SMA50 and might allow a backtest of the broken falling gray channel.

continued for members... (more…)

As we discussed yesterday, SPX may not be ready to make its next move.  The critical USDJPY Fib of 120.11 was tested and has rebuffed (for now) any further advances.

Likewise, VIX tested the .886 again and (for now) couldn’t penetrate it.

CL popped through the TL we discussed in the members’ section…

…which, with USDJPY’s temporary move higher than 120.11, was enough to boost stocks higher on the day.

It’s difficult to overstate the importance of USDJPY’s actions.  Two of the previous rejections resulted in 100+ point declines for SPX.

The third didn’t, but on that occasion USDJPY merely backtested the broken pennant top, and SPX was further aided by oil’s rebound and some nifty VIX monkey-hammering that broke the rising trend.

continued for members… (more…)

Friday saw a repeat of the SMA10 test, but this time SPX closed slightly below that support.

The futures are holding their cards close to the vest this morning, with ES off about 1 point.  USDJPY is going mostly sideways…

…while CL — off 1.5% — continues to hint at a retreat to the .786 or .886.

We’re examined the timing of breaching important resistance many times over the years.  If the past is any indication, SPX isn’t quite ready to make its next major move.

continued for members… (more…)

Still on the road today, so today’s post will be brief…

*  *  *  *  *

Yesterday’s call for a dip to the SMA10 was fairly accurate.  SPX reached 2103.76, which is about where the SMA10 was after all the dust settled.

So, now we’ll look for the other shoe to drop.  SPX’s upside targets remain in place, and USDJPY shows no signs of spoiling the party at this time — with the white .886 or the previous high as a likely target to lever stocks higher.

Interestingly, DX is coming up on the .500 retracement of the decline from 121 to 71.  It looks like a pretty good channel intersection as well.  Perhaps a reversal in next week or so?

GLTA.

The e-minis are essentially flat this morning following the first negative inflation (aka deflation) print since the financial crisis.  There’s an obvious retreat level around 2102.50 that would allow the rising red channel to flesh out and a backtest of the larger rising white channel (the upside target is equally obvious at the red 1.272 @ 2120.98.)

Such a decline might enable SPX to tag the 10-day moving average at 2100.08.  Though the daily rising wedge looks intact…

…the 60-min shows a breakdown late yesterday.

Rising wedges have been notoriously unreliable since central banks took the wheel.  About the best bears can usually hope for is that they broaden into a rising channel.  Still, SPX was allowed to dip below the lower bound, so we’d be inclined to bite…

…if only USDJPY weren’t riding to the rescue.

UPDATE:  9:50 AM

On our usual, detailed chart, it’s fair to say the rising white channel from Feb 2 looks like it’s finally ready to give up the ghost.  The purple one we proposed about a week ago would gain additional credence with a backtest at 2100 — its midline.

The timing looks like next Monday, Mar 2.  That would necessitate a delay of the 2138 tag — which fits with my leading scenario just fine.  Though, I can easily envision a bigger drop to, say, 2093.55 right here and now.

The key for bulls is to frame it as a backtest of the horizontal red channel.  If that should fail to hold, a dip to the SMA20 at 2068.24 would permit a backtest of the broken falling gray channel and further flesh out the rising purple channel.

It looks like that might have to wait, however, unless CL can poke through the bottom of the rising red channel.  I believe it will, but am less clear on the timing.

ES has done its part, having nearly reached this morning’s initial downside target.

Unfortunately, I’ll have to examine it after the fact.  I have a plane to catch and won’t be able to check in until after the close.

GLTA.

As SPX inches toward 2138, we should take another peek at the harmonic elephants in the room: the Crab Pattern and Butterfly Pattern that are about to complete.

Some background on past Harmonic Patterns…

Harmonic Patterns can be very powerful and are the best way I know of to anticipate significant reversals in the markets.  A glance at the chart above shows how the major Fibonacci price levels played key roles in SPX’s movement following the 57% decline between 2007 and 2009.

The 17% correction that began in April 2010 came after SPX approached to within 9 points of the .618 Fib level (61.8% of the decline from 1576 to 666.)  That reversal, at the important .618 level, set up several subsequent reversals, and might be instrumental in how the market behaves in the coming weeks.

By first reversing at the .618 in 2010, SPX completed a Gartley Pattern when it reached the .786 in May of 2011.  The ensuing 22% collapse (aided by a spectacular analog that is chronicled HERE) was fairly typical of a Gartley payoff (points X-A-B1-C1-D1 below.)

Likewise, the 9% correction that began in September 2012 following a tag of the .886 Fib — a Bat Pattern — was also set up by that original .618 reversal (X-A-B1-C1-D2.)  The decline was muted, coming as it did in the wake of QE3’s introduction.

As SPX approached 1823 at the end of 2013, it was completing a potential Butterfly Pattern.  Remember, a Butterfly’s defining characteristic is a significant reversal at the .786 Fib — in this case, the .786 tag in May 2011 (X-A-B2-C2-D3.)  Its completion can come at either the 1.272 extension (1823) or the 1.618 extension (2138.)

SPX shot past 2138 in the week between Christmas and New Year’s in a series of carefully orchestrated ramp jobs revolving around USDJPY and VIX.  When it finally reversed, the reaction was relatively minor at 6.1%.

Now, as it approaches 2138, SPX is completing both a Butterfly Pattern (X-A-B2-C2-D4) and a Crab Pattern (X-A-B1-C1-D4.)  There are other, smaller patterns that coincide and tend to confirm the 2138 target; but, they are minor in comparison.

Will we get a significant reversal?

If there’s anything I’ve learned over the past two years, it’s that the folks who manage the financial markets — the central banks and their Wall Street accomplices — have the tools to make the markets do what they want, when they want, on a day-to-day basis, on pretty much any given day. We have only to examine what happened last October when Bullard hinted at QE4.

Forecasting the markets has sadly evolved from anticipating how a wide variety of market participants will react to price movement, economic news, earnings, etc. to anticipating what The Powers That Be have scripted.  I have absolutely no doubt whatsoever that they can push and shove SPX right through 2138 if they so choose.  Alternatively, they might allow a minor correction of 5-10% just to blunt the growing chorus of accusations that the market is rigged (it is.)

As a non-insider, I have no special insight into their day-to-day thinking.  But, they do tend to fall back into certain patterns that can often be identified in advance — or at least as they’re unfolding.

I understand that most investors have never heard of harmonics, and many consider it to be on par with Ouija boards or throwing bones.  I spend a lot of time ruminating about this, and bounce back and forth between Harmonics as some mystical manifestation of cosmic forces or merely a self-fulfilling prophecy.

But, to ignore it is to ignore the past 6 years of market action.  And, as much as the TPTB would like us to believe it, all is not well in the economy or the “markets.”

Stay tuned.

SPX made a minimal backtest of the red channel top yesterday as anticipated.  From our initial post:

If the .618 [in CL at 48.46] holds and the bounce is strong enough, then look for SPX to hold at the broken red channel top (and white channel bottom at 2102) coming up shortly.

CL’s .618 Fib level did hold, and the bounce was strong enough that after SPX reached our target (2103.20) low for the day, it rebounded to 2110.70.

Last night, CL bounced a second time at yesterday’s bottom.And, USDJPY ramped higher — the better to convince us that the Fed’s dedication to higher equity prices ain’t going away anytime soon.

Aside from that…not much going on in the markets ahead of Yellen’s congressional testimony.   Expectations are for a non-event, and the early morning trading certainly reflects that.  However, it would be a rare Humphrey Hawkins day that didn’t produce some significant price action before it’s all over.

A few other news blurbs…

• Case-Shiller put out a less than rosy report on housing sales trends.
• JPM brings NIRP (negative interest rate policy) to the US.
• Greece says the eurozone approved its latest offering

And, here’s an interesting interview (aka book promo) with Dr. Pippa Malmgren, former member of the Plunge Protection Team.  Best quote:

“There is no price discovery anymore by the market; governments [are] imposing prices on the market.”

And, with that, we’ll tune in to Chair Yellen’s testimony.

continued for members… (more…)

SPX reacted pretty much as expected on Friday.  From the members’ section in the initial post:

…the odds of SPX gathering enough momentum to reach the red target have dropped dramatically.  Instead, it looks more likely we’ll get a drop to 2093.55, the intersection of the white channel bottom and the former high.

If that fails, the yellow target at 2087.39 is still very legit. But, of course, that would mean a departure from a very carefully constructed channel.  Given that it’s OPEX, that would probably be a head-fake — with the usual V-shaped rally following close behind.

SPX dipped slightly below the yellow target and appeared to be heading toward the red target price, but only reached 2085.44 before constructing a V-shaped rally into the close.

Late in the afternoon, we advocated taking the profits.

…don’t know which Greek news blurb to believe, so I’d go ahead and take profits here at 2107.  Might well be leaving money on the table, but I’d rather pocket the 20-pt profit than risk giving it back later.

SPX’s bounce was built on a bounce by CL and USDJPY and a crack in VIX — all of which occurred.  But, oil’s bounce has been completely undone over the weekend. It plunged to a 48 handle overnight, nearly reaching the purple .618  that could set up even lower prices.

continued for members… (more…)

Oil bounced where we expected it to.  From yesterday’s post:

CL…has found strong support at: (1) the bottom of the purple channel we suggested several days ago; and, (2) a combination of Fib levels including the white .786, the purple .382 and red .618.  If [it] gets a strong bounce at 50, SPX’s downside could easily be limited to the red 1.272 at 2087.39.

In fact, oil’s bounce was so dramatic, SPX only reached 2090 before getting the boost.

USDJPY also bounced — at the red pennant top.

But, they both settled back down overnight — which is why the S&P futures are currently trading off about 5-6 points.

continued for members… (more…)