Yesterday was one of those “will she or won’t she” days, with SPX dancing around the SMA50 all day long before finally nearly tagging our upside target at the white .886 (2054.74 vs 2055.08.)

We expected a sell-off to the white .618/SMA10 combo at 2032 at that point.  From the 3:37 update in yesterday’s members’ section:

Just came to within .34 of the .886.  It’s worth shorting here for the move to 2032, but only with tight stops in case they ramp it up overnight.  As before, keep an eye on the SMA50 at 2044.

It got down to 2036.72 before a last minute blip higher in USDJPY provided a lift.  And, as we suspected, they ramped it up overnight.  E-minis are currently showing a 14 point gain that seems to be waning as the opening bell approaches.

Note that, for all its threats to break out, USDJPY continues to follow the purple channel top lower.  That hasn’t stopped it from providing timely boosts when needed.  But, the effect will be limited until a breakout occurs — if it does.

A troubling development for bulls: VIX.

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CL rallied hard yesterday…

…providing a relief rally for SPX… …that was only belatedly aided by USDJPY.Our original call was for SPX to move higher if USDJPY pushed through the purple channel:

At this rate, [SPX’s] SMA10 looks to be tested on the opening.  If USDJPY can break out of the purple channel, there should be additional upside.

USDJPY broke out only briefly before falling back (the white arrows.)  But, equities kept soaring to keep up with oil.  The last two hours of the session were boosted beyond our 2036 sell signal when USDJPY rejoined the party.

SPX gave lip service to the SMA50 with an 8-pt drop, then blew through the .786 before closing just shy of the .886 at 2055.

Daily forecast coming up.

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Greece.  The confusion continues.  But, it hasn’t stopped the USDJPY-driven algos from boosting S&P 500 futures 50 points off yesterday’s lows.

SPX hit our next downside target (yellow dot) on the nose yesterday. This was a TL connecting the Jan 6, 14 and 16 lows as discussed last Friday afternoon.

It then bounced to an appealing upside target — the SMA100 at 2010 — which seemed like a great place to short again (11:39 update.)

It dipped pretty convincingly, shedding 20 points toward the SMA200 until about an hour before the session ended.  At this point, the Greece is fixed rumors heated up and it spurted higher to complete a Bat Pattern at the small white .886.

USDJPY took over at that point, moving back above the red triangle bottom and even the falling purple channel top.  It looks like the SMA200 tag will have to wait a bit longer.

Note that DX has reached the lower bound of the acceleration channel that’s kept it rising since mid-December — usually with positive effects on stocks.

At this rate, the SMA10 looks to be tested on the opening.  If USDJPY can break out of the purple channel, there should be additional upside.  If not, the pop should turn into a drop fairly quickly.

UPDATE:  9:35 AM

Looks like a good place to sell. Note the white 1.272 is essentially also the larger scale .618.  And, USDJPY has continued to settle after tagging the upper bound mentioned above.

The very latest out of Germany — the soap opera which is the Greece debt negotiations is looking messier and messier:

From Bloomberg:

Volker Kauder, the caucus leader for Chancellor Angela Merkel’s Christian Democratic-led bloc in German parliament, calls Greek debt recommendation “half-baked” demands a refrain from new proposals “every day.”
“We’re not going to play this game,” Kauder tells reporters in Berlin ahead of CDU/CSU caucus meeting. “I’m not ready to comment on half-baked plans every day. The fact remains that we have agreements with Greece and not with a government — and these agreements have to be adhered to.”
“Greek Prime Minister Alexis Tsipras’s new government has a right to make proposals, though must bear consequences”
“The German tax payer mustn’t be held liable for the decisions of this leftist-populist government. It’s up to Greece to decide.”
Troika of ECB, IMF and Commission must remain as negotiating partner with Greece.
“I don’t like the tone of voice out of Athens at all.  That’s not the way to talk to one another in Europe.”
“There are new proposals and new reports coming out of Greece all the time and all of Europe and beyond seems to be holding its breath.”
“A government should first of all reflect, should make concrete proposals and not present something new every day.”
“The new Greek government doesn’t create any trust this way.”

Doesn’t sound terribly “fixed,” does it?

Speaking of the euro mess, note that the EURUSD continues to rebound since our bottom call upon its reaching our 1.12 target 10 days ago [see: Jan 23 update on EURUSD].

With JPY going sideways and the euro strengthening, it makes one wonder if that DX channel will hold…

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As we’ve been discussing for nearly two weeks, a triangle in USDJPY has been driving the volatile sideways action in SPX.  Yesterday, while half the world was absorbed in football, the triangle finally broke down — just long enough to tag a meaningful retracement.

By the time the game was over, USDJPY was safely back in the triangle, where it currently resides in the narrowing territory between the purple channel top and the triangle bottom.

It’s a lot easier to manipulate futures prices over a low-volume weekend, and this one was no exception. Has USDJPY’s plunge taken place right about now, SPX would be testing the SMA200 down at 1974.  But, that’s not the way the script reads…

S&P futures fell 9-points with the initial plunge, but have since risen more than 13 off the bottom. They’re currently showing a gain of 7 points – meaning yet another test of the white channel top and/or purple channel midline.

If the rally can be sustained beyond that, the SMA100 is currently around 2010. But, bulls might wish to keep an eye on the fading rally in oil.  CL briefly tested 50 — almost at the .886, and has since hinted at a retracement.

UPDATE:  10:11 AM

SPX just reached our next downside target at 1980.  A reminder, this is a TL that connects the Jan 6, 14 and 16 lows that we detailed in the 3:55 update (members’ section) on Friday afternoon.

Note that this move below 1988 completes a traditional H&S Pattern that would target 1912 if it were to hold.  Needless to say, not many H&S Patterns have held in the past couple of years.  They’ve effectively been banned by central bankers and algo-centric HFTs.

More importantly, though, it officially kills off the IH&S that TPTB were trying to sell us.  From here, the SMA200 becomes a much more reachable target — though we wouldn’t be surprised to see a decent bounce at this TL.

Next moves coming up.  continued for members… (more…)

Yesterday’s equity price action revolved around whether or not USDJPY would break above the purple channel top in order to test the upper bound of a triangle pattern it’s been tracing out since Jan 20.  From yesterday’s initial post:

Note that USDJPY bounced off the lower triangle bound, and is again flirting with the channel top and a return to the [triangle] upper bound.  I believe it’ll pop out of the channel — even if it’s only intra-day — and provide a nice lift for SPX.  If it doesn’t, then the falling red channel could get SPX down to the SMA200 by late today or tomorrow.

That’s exactly what happened.  USDJPY’s initial pullback at the channel top drove SPX to its lows of the day where it was stick-saved at a mere 1.02 above the previous low, thereby keeping the IH&S Pattern (technically) alive.

The stick save was accomplished by a push through the channel top to the triangle upper bound referenced above, which it held long enough to drive SPX 35 points off its lows.  USDJPY held those prices through the close, at which point it fell all the way back into the channel and is testing the triangle lower bound.

Though SPX’s initial drop was lower than we expected, the rise was along the lines of what we were looking for:

TPTB might want to breach Tuesday’s low (2019.91) in order to screw up a potentially bearish wave count. A move by USDJPY above the triangle top could do it.  Be cautious, as the algos seem to be back in charge.

SPX reached 2024.64 before falling back to close at 2021.  USDJPY’s fall back to the triangle bottom has driven futures down over 20 points.  A backtest of the falling white and red channels at around 2006 seems like the easy call.  Whether it holds at that point will depend on… wait for it…whether USDJPY bounces off the triangle lower bound for a 6th time.

Hopefully there’s no doubt in anyone’s mind anymore that the daily direction of the “market” is being almost completely determined by the yen carry trade.  Since the daily price action of USDJPY is almost completely manipulated by central banks and HFT algos, that means the stock “market” is also.

The chart pattern in USDJPY makes it rather obvious.  But, as we wrote several weeks ago, it seems that TPTB don’t really care anymore just how obvious are their day to day manipulations.  Pick a price for USDJPY, peg it there, and voila! — SPX goes right where you want it.  Almost makes one yearn for the good old days of market maker manipulation.

UPDATE:  9:50 AM

It’s– it’s– a miracle!  You’ll never guess what happened…!

SPX tagged the SMA100 and bounced about 8 points so far.  In case you’re thinking “this can’t go on forever; the triangle is contracting,” you’re right.  The triangle’s apex looks to be about Feb 16.  And, the top of the purple channel passes beneath the triangle’s lower bound next Wednesday.

But, as we saw last night, USDJPY’s rises produce more upside for SPX than its falls produce downside.  This has been the case for the past two years, and isn’t likely to change anytime soon.

USDJPY is coming up on the purple channel top again, meaning yet another opportunity for a reversal.

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I believe SPX will get down to our target — or at least close to it when USDJPY reverses.  At that point, it’ll be up to the algos to see whether or not they can erase January’s negative print (-1.83%) by the end of the day.

By my calculations, we’d need somewhere around 36 points, or SPX 2051.  It would be a massive reversal off today’s lows, so probably not too likely.  But, I wouldn’t put it past them to try.  According to Deutche Bank’s Jim Reid:

A good January has usually (but not always) been associated with a good year for US equities. Indeed using 87 years of data from Bloomberg, there have been 55 positive Januaries with 44 of those going on to have positive years with an average increase of about +20%. Of the 32 negative January months that we’ve had since 1928, ‘only’ 14 of those went on to finish the year higher in the end with average annual returns of around +14%. The remaining 18 negative Januaries were associated with a negative full year performance with an average return of around -14%. Clearly past performance doesn’t guarantee future returns and its a bit spurious but its always fun to look at. Indeed post crisis we’ve seen a few counter trend moves as three years (2014, 2010 and 2009) have seen the year bounce back from a bad January performance.

Note that the exceptions to a bad January portending a bad year came in years with substantial QE.  Probably just a coincidence…

Of course, if they decide to let USDJPY give up that triangle, then there’s plenty more downside — the SMA200 at 1974, for starters.  But, as we pointed out yesterday, that would mean wasting a perfectly good IH&S.

UPDATE:  11:10 AM

USDJPY just dipped below the triangle…

…meaning SPX’s bounce is fading fast.

UPDATE:  2:20 PM

Another miraculous recovery for stocks…

…thanks to USDJPY, which was just kidding about the drop through the floor of the triangle.

USDJPY will need to poke through the yellow channel if SPX is to really get going.

UPDATE:  3:55 PM

Bit of a headfake there, but things are turning negative going into the close.  Or is the sell-off the headfake?

GLTA.

 

 

Yesterday was another one of those days when everything just fell into place.  From the initial post:

With the close at the SMA10 support yesterday, and a subsequent pop in the futures, the immediate trend looks to be higher…

Continued in the members’ section:

If SPX can hang on to the TL connecting to the 2019 lows, that TL could be considered part of a larger rising channel… If, however, prices drop below the tentative purple channel bottom, then our Gartley Pattern target at 2004 starts to look pretty good.

The pre-opening chart (below) showed both upside and downside scenarios — courtesy of the impending FOMC announcement.  The key to which direction SPX took was the purple channel bottom mentioned above.

SPX popped at the opening, gaining 13 points to tag our upside target at 2040, then reversed dramatically in three waves to tag our 2004 target in the closing minutes (bottomed out at 2001.49.)

The only adjustment we needed to make was to move the yellow target to later in the day — thanks to the initial spike following the Fed’s proclamation that the economy is hunky dory.

We called for a rebound at 2004, as it completes a Gartley Pattern (the white .786) as well as a Crab Pattern (the smaller, white 1.618.) and  — yet, again — tests the SMA100 and a key channel midline.

The falling red channel has served us well on the slide from 2064.  At this point, however, SPX has to decide whether to respect the falling white channel, into which it strayed in its latest backtest.

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Yesterday was one of those days where the charting was deceptively easy (if only they all were…)  We started out with essentially the same chart as was posted last Friday. The only alteration was to add another downside target (the lowest red “S”) at the falling white channel top in order to accommodate a potential backtest of that channel.

Our gameplan for the day was pretty straightforward, a continuation of the previous day’s forecast:

…SPX should be shorted overnight at 2053 by those with the stomach and the ability to watch/hedge such positions — a stance that’s looking fairly prescient with the e-mini’s off nearly 30 points just prior to the opening bell…SPX looks likely to nail our next downside target in its opening move.

SPX nailed our next downside target, but the bounce was muted — only 6 1/2 points instead of a backtest of the SMA20.  As such, our next downside target came into play sooner than expected.

Our original plan was for a deeper drop to somewhat match the left shoulder using the red neckline.  I chose a backtest of the falling white channel at 2017ish as the target.  I see this as at least a 50:50 shot…

The backtest stopped just short of our target at 2019.  We then projected a bounce back to the SMA10 and then the SMA20 at 2041, at which point we recommended a protective stop.  SPX reached 2043, then reversed — triggering our stop and setting our sites on the SMA10 at 2029.  SPX closed at 2029.88.

After the close yesterday, AAPL blew the doors off most everyone’s forecast — kicking off a ramp-a-thon that saw USDJPY rally back to the channel top (yes, again) and S&P futures a whopping 24 points. Even though USDJPY backed off the channel top overnight, ES is clinging to a 5-6 point gain.  This leaves the chart picture muddled, which is appropriate given that we’ll have a Fed rate decision coming up at 2pm EST.  There will be no press conference, and no shocking shifts in policy are expected.  But, it still leaves the “market” in a bit of suspense.

With the close at the SMA10 support yesterday, and a subsequent pop in the futures, the immediate trend looks to be higher.  Remember, the drop to 2019 was a backtest of a falling channel.

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Our last update [see: Update on Bonds Dec 5, 2014] came on the heels of a strong move higher in interest rates — from 1.68 to 2.40% in 3 weeks time.  We wrote at the time:

Yields on the 10-yr have bounced strongly since it reached our reversal target on Monday [see: CIW Dec 1.]  Today, TNX tested both the 20- and 50-day moving averages and is probably ready for a breather, if not outright reversal.

Dec 5, as it turned out, marked an important top for yields on the 10-yr, which dropped from 2.33 (the white arrow below) to 1.70% by mid-January.

Though yields bounced pretty nicely at that point, they couldn’t push back above the bottom of the (corrective) red channel and have since slumped lower.

We believe yields will drop even further in the next month or so and have set a target of 1.53% by late February.

Taking a look at the big picture, we can see the white .886 and the red 1.618 Fib levels — which are closely aligned — intersect with a falling white channel line around that time.

While the confluence of chart patterns suggests a decent bounce, slumping interest rates and economies around the world could just as well portend a continuation of the falling white channel.

If Spain and Italy can trade below 1.5%, why not the US?  From Bloomberg:

One last thought…while yields and SPX were moving opposite one another earlier in the year, they snapped back in sync between mid-November and year’s-end.  Since then, they’ve diverged again — with yields trending much lower while stocks managed a volatile holding pattern.

But, the divergence is actually much, much greater than that.  As we’ve pointed out many times, big declines in interest rates have been highly correlated with big declines in stocks over the past 10 years.

The last four declines in TNX are highlighted above.  Note the percentage decline in SPX during each period: -52%, -15%, -20% and -10%.

The decline which began in January 2014 has lasted longer than any since the financial crisis.  And, it’s about the same degree as the average of the past three.

Yet, it’s the only one accompanied by an increase in SPX — a whopping 14% increase, at that.  It does make one wonder what would happen to stocks if central banks ever stopped propping them up.

 

Yesterday’s forecast worked out nicely.  Recall that this was the same scenario first laid out last Friday.

As such, I see no reason to adjust Friday morning’s chart/forecast: a test of the SMA20/50 — and a potential IH&S right shoulder if those don’t hold.

After SPX reached our initial downside target, we called for a bounce that was only slightly more exuberant than anticipated.  Watching USDJPY, we noted:

It’s now threatening a breakout for the fifth time since early January.  I suspect this one will also run out of juice, leaving SPX to backtest the rising white channel at around 2053 before heading further south.

SPX bounced off the SMA20 at 2040 up to 2055, then hung around while USDJPY teased us with the idea of a breakout — a breakout that failed yet again last night.

Our closing note to members was that SPX should be shorted overnight at 2053 by those with the stomach and the ability to watch/hedge such positions — a stance that’s looking fairly prescient with the e-mini’s off nearly 30 points just prior to the opening bell.

SPX is at our target of 2053.  I’d short here with tight stops — but would strongly recommend cash overnight for those who can’t hedge or watch their position like a hawk overnight.

SPX looks likely to nail our next downside target in its opening move.  We’ll update the charts shortly.

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Last Friday’s pre-opening forecast worked out very nicely.  I just drew it backwards.

Initial support can be found at the white .618 at 2053.29 and the rising white TL off the Oct 15 lows.  After that, the SMA20/50.  And, in the event it pushes lower, a backtest of the falling white channel (the red S.)

I thought the initial drop would tag the white TL from mid-October, and the close would be at the .618 at 2053.29.  It worked the other way around.

Futures were off 37 points in the wake of the Greek elections, but have recovered virtually all of those losses in the usual overnight USDJPY-driven ramp job.

Another factor weighing on equities: oil.  Crude light tested its previous lows late Friday.  Though it bounced on OPEC General Secretary El-Badri’s comments, it’s still looking rather wobbly.

As such, I see no reason to adjust Friday morning’s chart/forecast: a test of the SMA20/50 — and a potential IH&S right shoulder if those don’t hold.

UPDATE:  10:40 AM

So far, so good on this morning’s forecast.

For those wondering whether or not the lower target will play out…it’s hard to say.  Tell me whether or not USDJPY will break out of its falling channel that goes back to Dec 7.

It’s had three stick saves (on Jan 21, 22 and 25) that also propped up SPX (ES shown below for charting purposes.)

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