When we last reviewed gold in November, it had dipped below an important level of support.

As we noted back then:

…a failure to retake the broken TL would indicate lower prices to come. [The channel placement] is tricky.  In this case, I’ll give more credence to the upside if/when the red trend line of support (now resistance) is breached.

Wouldn’t you know…gold popped back above that red TL and is currently going strong.  As noted before, I wouldn’t put too much credence in the placement of a very long-term channel like the white one below.  But, the TL is clear.  And, as long as prices stay north of 1180 or so, all is good.

If they don’t, the close-up shows the strong case that could be made for a drop to the yellow .500 Fib at 1089.40.  But, of course, that would require the trend line and previous lows (1140ish) to break down again.

Bottom line, the argument is for a reversal here at the white .500 at 1302.  It also represents a backtest of the yellow .382, the midline of the purple channel and the top of the iffy red channel.

GLTA.

 

 

In last month’s update [see: Update on EURUSD Dec, 3, 2014] we noted that it was approaching an important level of support: the purple .886 that intersected with a trend line connecting the previous three lows.  It was the perfect setup for a bounce if Draghi and friends didn’t come through with the massive quantitative easing they’d been threatening for the past couple of years.

We put a target on the white .618 Fib level just in case they finally did it.  As everyone knows by now, they did it [see, well: They Did It.]

Guess where EURUSD ended up?

For the promise of $1.1 trillion or so in bond purchases, the ECB succeeded in driving the pair right to our downside target — which it tagged today…and, then bounced.

For anyone trying to relate the move to stocks, the picture is less than crystal clear.  While there has been a strong correlation between SPX (below, in purple) and the euro, that correlation broke down in May 2014, when stocks soared higher in lock step with USDJPY.

We should consider two key questions:

(1)  could EURUSD bounce significantly here, in the wake of the QE announcement?
(2)  what are the ramifications for stocks?

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In last month’s update on VIX, we noted it had fallen below and backtested the rising purple channel bottom.

Should the backtest hold, the message is that stocks have fallen as far as they need to.  VIX will settle lower in order to prevent things from getting out of hand.  But, remember, we’re expecting a fair amount of chop through year-end.  So, don’t be surprised if VIX vacillates around this [level] for days or weeks to come in order to set the stage for stocks’ next push.

The backtest was, itself, a head fake.  VIX dropped for exactly one more day before shooting back up through the channel bottom as SPX logged a 100-pt decline through mid-December.

From there, it was a very wild ride as SPX regained all the losses (and, then some) before shedding 105 points through mid-January.

In my opinion, VIX has lost much of its predictive ability.  It is frequently manipulated by the Fed’s proxies — not to mention other central banks and hedge funds — in order to prop up stocks (particularly at the end of the trading day.)

So, instead of a valid barometer of the level of fear in the markets, it has become more an indicator of when TPTB are stepping in to prevent any further declines.  When things get out of hand — as they seemed to in early October, early December and early January — a monkey-hammering of VIX is just the thing to help “markets” recover.  Note the falling white TL connecting the tops of Oct 15, Dec 16 and Jan 16.

Nevertheless, it might provide some clues to the script which guides the day-to-day moves.  Following a general downtrend from its highs of Oct 2008, VIX spent the couple of years going sideways.

The spike in mid-October reached 31.06, which was roughly a .236 retracement (white grid) of the drop from 89.53 in 2008 to 10.28 this past year, and a .500 retracement of the drop from Aug 2011 (yellow grid.) Note the general uptrend since then as depicted by the revised purple channel.

In the world of harmonics, we might put a pin in that yellow .500 tag and speculate about a potential Bat Pattern leading to the yellow .886 at 43.70.  Note that it’s closely aligned with the purple 1.618 at 43.13.  And, that price level is roughly equal to the previous peaks of the past five years: 48.20 in May 2010 and 48 in Aug 2011.

If the rising purple channel is valid, it wouldn’t happen until July or so, and would slightly violate the .786 falling white channel line.  It would also represent an official breakout of the falling wedge from 2009 (the red, dashed TL and white channel bottom as upper and lower bounds respectively.)

In order to get there, though, VIX would need to rebound at the white channel’s .236 line (currently around 15) and the purple channel would need to hold.  Note that the purple .236 has been tagged already, and the yellow .146 is just below, intersecting with the rising purple channel .236 line (the white dot.)

Again, TPTB know these spots, too (or, at least should) and might well have special plans to smash VIX lower at that point. The purple channel has already tilted to a lesser slope once.  They could be angling for something like the red channel or yellow channel sketched in below.

And, the decline from 25.2 on Dec 16 doesn’t look complete from a wave or harmonic standpoint.  A decline to the white .886 at 13.09 or even the purple channel bottom at 12ish would make all the sense in the world in the short run.

If, on the other hand, VIX reverses around 15, our next upside target is the purple .886 at 29.  The chart below depicts the new purple channel as well as the targets mentioned above.

GLTA.

 

 

 

 

Yesterday’s ECB QE lift-a-thon saw SPX perform pretty much as expected.  SPX reached the midpoint of the target we set Tuesday (2042-2047), then reversed to the bottom of the rising white channel as we detailed in our initial post:

Look for SPX to back off from the SMAs and backtest the broken white channel, possibly around 2030.  TPTB should support it there.

SPX reversed from 2045 to 2026 before the support kicked in, sending it back up through the SMA20 and 50 and through our initial upside target of the day at 2053.

At 2055, we were fine with the idea of taking profits (53 points based on the above calls.)  But, the algos weren’t done.  At 2063, we thought it was probably a good shorting opportunity.

Based on the price action in S&P futures, a drop in oil, and a probable reversal in DX, EURUSD, USDJPY and VIX, we should see at least a partial retrenchment of yesterday’s gains.

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.) We’ll update the other charts shortly.

UPDATE:  3:45 PM

Not too shabby….

Tough call going into the weekend.  Even if SPX stops at the rising white channel bottom, it doesn’t mean a continuation of the rise on Monday.

Please note we’ve updated the EURUSD and VIX pages.  The EURUSD in particular holds some interesting implications for the stock market.  VIX tagged our downside target on the nose, bouncing exactly where it needed to in order to get this sell-off in SPX to our downside target.

We’ll update more over the next day or two.  Have a great weekend, everyone!

 

 

 

 

 

 

 

 

 

 

Mario Draghi opened his press conference with a small joke:

“Don’t read too much into this small delay.  It was the elevators.  They are not working.”

Perhaps he was speaking metaphorically — referring to the litany of failed “whatever it takes” efforts to date.

Economists will have to sort out whether they think the ECB’s shiny new QE effort will benefit member EU countries.  But, the futures like what they see, with e-minis gaining as much as 21 points in the minutes following Draghi’s announcement.

As such, look for SPX to reach our target price range of 2042-2047, with a bias toward the upper end of the range.

Yesterday was a nearly picture-perfect performance by chart standards.  We were looking for a drop and pop that would flesh out the rising white channel.  From our initial post:

…stocks should open lower today.  The rising white channel bottom makes for a convenient initial target…Whatever bounce we get…will have to contend with the SMA10 again.  If it can push through, then yesterday’s 2042-2047 target area is very much in play.

The channel tag was on the nose, and SPX did, indeed, push through the SMA10.

2035.29…will be the next test for SPX…should see a reaction here, but hard to say how much.  It could be just a small one, backtesting the rising white channel midline around 2030ish.  If that doesn’t hold, maybe the .500 at 2026 and then the purple TL at 2019.

SPX reached 2038.29, fell to 2030 — where it loitered for 30 minutes or so — then bottomed out at 2022.77.  It rebounded to the falling white channel upper bound and closed there as expected.

UPDATE:  9:35 AM

This morning’s initial thrust came in on target, reaching the middle of our 2042-2047 range at 2045.15.

Look for SPX to back off from the SMAs and backtest the broken white channel, possibly around 2030.  TPTB should support it there.  Any sustained drop below the rising white channel would be quite a bearish development and definitely not in keeping with today’s script.

UPDATE:  2:35 PM

After tagging this morning’s initial upside target, SPX obliged by reversing to backtest the white channel line as expected.  After finding support there, it climbed to our final upside target for the day — the white .618 at 2053.29.

It has leaked slightly higher to the purple .886 at 2055.74, where it might well run out of steam.  Not saying one should short it here (though I think that would probably work out.) But, for anyone who’s captured the 53 points in all that we mapped out this morning, it wouldn’t be a terrible spot to take profits.

UPDATE:  3:12 PM

I guess SPX had a few more points in it after all.  The algos are obviously firmly in charge at the moment, so it needn’t reverse at all.  But, there’s an interesting potential reversal point here at 2063 that makes a lot of sense.

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Stocks faded quickly after the open yesterday — testing the moving averages on both the upside and downside as expected.

USDJPY had reached the upper bound of a falling channel.

If the upper bound holds, then this morning’s rally in stocks should burn out quickly after testing the SMA10.

SPX pushed a little past the SMA10 before dropping fast to the TL we had drawn and testing the SMA100.

…meaning SPX should find support at the white TL after this morning’s sharp reversal.  If not, the SMA100 is just below at 2007.85.

We’ve replaced the TL with a rising white channel in the expectation that the uptrend will continue if the 93% who expect the ECB to bring massive QE to the “market” are correct.

Overnight, USDJPY’s rising wedge finally broke down, meaning stocks should open lower today.  The rising white channel bottom makes for a convenient initial target.

Note that the channel picture for USDJPY is still negative — though we should be wary of a bounce off the falling red channel (in a backtest.)

One cloud hanging over stocks is ECB Governing Council member Nowotny’s comment  that central bankers and policy makers should retain a longer-term perspective and “have a bit of a relaxed attitude to news and not to get too excited about the events of one day.”

Maybe it’s just me, but this doesn’t sound like a guy about to unleash massive amounts of QE.

UPDATE:  9:37 AM

Got the lower bound bounce right on target.

USDJPY rebounded .35 off this morning’s lows, bouncing off the broken red channel as discussed above.

Now for the upside targets…

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Friday’s SPX lows got a little closer to the red .886 target at 1986.35: 1988.12 vs 1988.44 on Thursday.  Sometimes it’s hard to time the USDJPY ramp job just right. USDJPY tacked on 1.90 Friday, and another 1.16 Friday’s post-Friday’s close.

In last night’s leg up, it broke out of the falling red channel — enough to give futures an 11-pt boost (back down to 6 points as of this writing), on top of Friday’s rally.

Friday morning’s initial dip helped establish a broader potential falling channel, shown below in white.  The red channel took the pair to the midline, and this morning’s rally tests the upper bound.

If the upper bound holds, then this morning’s rally in stocks should burn out quickly after testing the SMA10.If USDJPY holds, or punches through the channel top, then SPX’s upper targets include a backtest of the broken white channel.

A little over a week ago [see: Jan 12 Update] we discussed the likely path USDJPY would take, and the ramifications on stocks.

I think USDJPY (118.34) is stuck.  I think TPTB have probably reached a limit on further yen decimation, and are trying to hold it in a range of 115-120 in order to prevent further SPX declines…If a floor can be established until the ECB begins QE — then, all is well.  SPX will be propped up.  If the floor gives way, SPX should go down and test the SMA200 (currently 1962) as we discussed last week.

USDJPY did, indeed, ultimately find support this past Thursday at 115.84.  This enabled SPX to be propped up, leading to the little double bottom that couldn’t quite reach a simple Fib level.

Gotta love our unrigged markets…

UPDATE:  9:54 AM

Speaking of which — USDJPY just reached the bottom of its little rising wedge…

…meaning SPX should find support at the white TL after this morning’s sharp reversal.  If not, the SMA100 is just below at 2007.85.

UPDATE:  10:16 AM

The consolidation we’ve expected over the past two weeks has been driven almost entirely by the USDJPY.  It’s essentially out of gas, meaning some other device has to come along to prop up stocks: the EURUSD.

The ECB is widely expected to announce new easing measures on Thursday the 22nd.  If they do, the EURUSD will pick up where the USDJPY left off.  If not, then the “market” is — what’s the technical term? — oh, yeah…screwed.

In between now and then, I imagine we’ll get a series of stick saves courtesy of the USDJPY — which will ultimately settle into the trading band discussed above.

More shortly.

UPDATE:  11:04 AM

A little deeper into the lower bound for USDJPY…

…means a tag of the SMA100 for SPX.

11:40 AM

As discussed above, the presumption is that the ECB will come through with massive QE on Thursday, and stocks will be off to the races.  If not, the downside could be substantial.  We’ll take a moment, here,  to pinpoint some potential targets.

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TPTB have done a remarkable job keeping the earth from shattering.  But, of course, all those margin calls are being dealt with this morning.  So, we’ll see just how big a deal it was over the next 7 hours or so.

We suggested faded yesterday’s opening highs (2013ish), which proved to be the smart play.  From our initial post:

I’d fade this morning’s rally at the first opportunity, with an initial target of the SMA100 at 2007, and a secondary target that .886 at 1986.35 that we didn’t quite tag yesterday.

SPX tried to rally multiple times — with the usual nudges from USDJPY and VIX — but, managed to close at the lows yet again (1991.47.)  Futures are off about 5 points at this writing.  So, I suspect we’ll finally tag our downside target of 1986.35 that was narrowly missed on Wednesday.

If that doesn’t hold, our remaining targets remain in force from earlier in the week.

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The last comment I wrote in yesterday’s members’ section:

The reality is, I expect a very nice bounce here — with that 2030 level (1:54 update above) looking good for the next big move.  But, the headline risk has been pretty substantial lately.  As such, I wouldn’t carry any position overnight unless you have the means to hedge and/or monitor it closely.

The initial ramp job after the market closed was spectacular, with ES gaining about 23 points.  Then, the SNB peed in the punch bowl, essentially decoupling from the euro.  ES dropped 42 points in a jiffy, and is only up a few points because of the plunge protection team’s efforts — a rally of 28 points.

Is it legitimate?  No.  Does it make sense?  Hell, no.  Will it last?  Ah, that’s the question.  Probably not.  Here’s where we left off yesterday, with nearly every intra-day call working out beautifully.

A rally up to 2030 made sense because of the key Fib levels and channel patterns in play.  But, the Swiss just removed a big chunk of the carry trade architecture.  So, while their move increases the likelihood of ECB QE (why else would they hit the panic button like this?) it puts a dent in the portfolios of those who were short the swiss franc (CHF) as part of the carry trade.

I’d fade this morning’s rally at the first opportunity, with an initial target of the SMA100 at 2007, and a secondary target that .886 at 1986.35 that we didn’t quite tag yesterday.  I suspect they (and by they, I mean every central banker) will be working overtime to contain the damage.

I say “contain,” because lower prices were already in the script — just not yet.

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Yesterday was a wild ride for SPX.  It took off in the morning, overshooting our upside target by 7 points.

But, our 9:40 top call proved accurate, and SPX maxed out at 2056.93.

SPX just sliced through the SMAs and tagged 2054.75.  It should top out between here and 2059 — the .886 of the drop and a backtest of the rising white channel.  I’d be very careful about chasing it any higher.

It subsequently dropped to our downside target of the day, a plunge of 48 points to the .786 & SMA100 combo at 2008.  I had actually expected it to come the following day (today.)

IMHO, this morning’s rally is overdone.  But, the algos are propping it up.  As such, I suspect any initial slide will be limited to a backtest of the SMAs — unless USDJPY reverses soon.  But, odds are its reversal will come after the close and not affect SPX…The problem is that it should drop further.  But. again, that could happen after the close without affecting SPX.

The bounce from there, again, overshot our upside target of 2020, but didn’t have enough juice to keep going and settled back to close within the falling red channel.

…SMA100 tag for SPX, we should see a nice bounce here.  How far will depend on many factors, but I’d say at least back to the .618 at 2020.  Beyond that, the rising white TL comes back into play.

All in all, a quite bearish 48-point drop from its initial 23-point ramp.

On to today…

USDJPY reached our 116.68 target overnight — and, then some. This was the downside target we set on Monday, (the red circle) so the timing turned out pretty good.

The .786 would have kept the pair in our falling red channel, but this morning’s retail sales numbers were just too dreadful.

The e-minis are following suit, currently off 23 after being down about 30 points earlier.  SPX looks destined to reach the .886 (2000.65) we’ve been targeting.  If it overshoots — and, there’s a decent chance — there’s channel support down around 1986ish.

UPDATE:  10:00 AM

SPX came pretty close to our initial downside target: 2001.38 versus 2000.65.

USDJPY’s bounce at the .886 should provide a bounce for SPX as well.  From there, it starts getting interesting.

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