USDJPY reached the 2.618 Fib yesterday and has since settled back to the 1.618.  There is support at 114.20, and the upside potential remains the yellow .886 at 118.59.ES broke a week-old rising wedge overnight, so I believe yesterday’s call for a revisit of the previous high (and SMA10) of 2019.26 remains the most likely downside case, with 1996.62 as the next major support.  As to the upside, I still have my eye on 2138 — the 1.618 extension of the drop from 1576 to 666 between 2007 and 2009.

Keep an eye on NKD, which overshot our upside target just enough to make a new high last night.  It has since retraced to the .886, suggesting it will treat this strong Fib resistance as support going forward.

GLTA.

SPX is coming up on the trend line connecting the index’s previous highs.  This TL has been respected in the past, but there is also a tradition of important TL’s being leapfrogged on low-volume holidays.  Today should be very low volume.

The daily chart shows the abject lack of meaningful pullbacks since the 1820 lows — particularly since USDJPY’s moon shot higher. The SMA10 should reach the Sep 19 2019 high tomorrow — perhaps time for a token pullback?

As we expected, the US dollar’s reaction to the red 1.618 extension appears to be yielding to a run for the larger scale purple .886. 

DX and SPX don’t always march in lock step, but lately they have.  So, a reaction at the .886 should incite a reaction for SPX as well.  If TPTB don’t use today as an opportunity to hop the TL discussed above, perhaps we’ll see the two events in sync.

USDJPY continues to race higher, topping 116 with the .886 just ahead at 118.59.  Reuters re-published an article from this weekend speculating that Abe planned to delay the sales tax increase slated for next October.

The big picture:

Needless to say, this enabled the Nikkei to reach our upside target range posted on Nov 6.  As is often the case, the rally was halted just short of the .886, meaning there is room for another spurt higher while still respecting the yellow .886 retracement (of the drop from 18,700 in Jul 07 to 7,325 in Oct 08.)

Should the Nikkei’s .886, the USDJPY’s .886, the DX’s .886 and SPX/ES TL all function as they normally have, we should get a meaningful downturn in the next 24 hours or so.  But, of course, the S.S. Normal sailed a long, long time ago.

GLTA.

Few financial assets engender as much debate as gold.  Depending on whom you believe, gold is either about to double in price or drop by half.  Many believe the price has been highly manipulated — an argument I wouldn’t even begin to dispute.  Given the influence central banks and their proxies have exerted over other financial assets, I’d be shocked to learn that gold was, somehow, left out of the mix.

With that caveat, I still think it’s instructive to check in on the charts once in a while.  If for no other reason, they can provide some hints as to the plans of The Powers That Be — assuming they have a plan and aren’t just winging it.

Those with a better memory than mine might remember we first talked in April 2013 [see: Apr 15, 2013 Update] about the 1155 target should the red channel bottom fail to hold.It didn’t.  We went with the broader, alternate rising channel shown below in white and saw three pronounced bounces at horizontal support just above 1180 in June 2013, December 2013 and Oct 2014. That support finally broke down on Oct 31.

GC dropped below the red, dashed trend line of support, and is currently in the process of backtesting it.

As stocks have repeatedly demonstrated, losing important, long-term support isn’t necessarily the kiss of death.  A timely aside by a Fed president can work wonders.  But, ordinarily, a failure to retake the broken TL would indicate lower prices to come.

So, I was surprised to see that Merrill Lynch’s McNeil Curry just called a bottom on gold.  Setting aside Curry’s arguments that the wave count, candle pattern and open interest are bulIish, I would readily admit that the extent of fiat creation supports the idea of a inflation-driven reversal — as does the long-term channel (I also like the idea of our 1155 Fib holding.)

Channels like this can tricky.  A slight tilt one way or the other can make a world of difference in a chart that dates back 15+ years.  In this case, I’ll give more credence to the upside if/when the red trend line of support (now resistance) is breached.

Regarding inflation, the Fed’s all-you-can-eat approach to economic stability has spiked the money supply — but not velocity.  Prevailing wisdom is that all that cash is going to banks and corporate coffers where it is bedding down for the long, cold winters to come.

If deflation is more of a threat than inflation at this point, the impetus for increasing prices would most likely be a rise in political/military conflicts, an inflationary shock (e.g. oil) or a financial development precipitating a flight to safety.

IMO, these risks are as significant as ever.  Though, lately, stock prices have brushed them aside in a seemingly boundless central bank and algorithm-fueled melt-up.  So, should we expect gold to be any more susceptible?

If TPTB meant gold prices to rebound from 1180 yet again, one would think they would have left the net in place at that level.  Simply put, it’s a lot more work to overcome resistance than to observe support.

In addition, gold and equity prices have been negatively correlated lately.  If stocks are to continue rising (as central bankers everywhere are clearly hoping inciting), we should expect continued weakness in gold.  If for no other reason, they can point to it as justification for more inflation-stoking QE.

Bottom line: if you’re burying bullion in the back yard, you probably couldn’t care less about the day-to-day swings in the financial markets.  But, if you’re a trader, keep an eye on that trend line around 1180 — gold’s line in the sand.

If 1155 holds and gold can push through 1180, then it has significant upside to 1300 or so — the .786 Fib and a TL off the highs dating back to May 2013.  If not, the next real support doesn’t come in until 947.

Should be a low-volume day, today.  USDJPY is resetting, with no knock-on effect on ES.

While, the Nikkei has completed a descending triangle — normally a bullish setup pattern.

It’ll be telling to see if it acts as such here, as NKD is technically still reacting to the yellow .886 Fib.  NKD is one of the most heavily manipulated indices (I know, it’s redundant) around.  So, any kind of drop here would offer some hints as to the script for the markets going forward.

One development worth watching: the US dollar.  DX reacted at a smaller scale 1.618 Fib extension.

But, it didn’t quite reach the much larger scale .886.  So, another surge isn’t off the table.  And, such surges have been bullish for stocks lately.  To further complicate matters, DX popped up through the falling red dashed trend line connecting the ’04, ’09 and ’10 tops — but not the rising purple TL connecting the ’11 and ’12 tops.

I’ll be watching DX and NKD especially closely today.

GLTA.

SPX came withing 0.61 of closing the gap we were watching Tuesday before the downtick prevention team screamed into action.

Since then, it’s been a steady march higher — with USDJPY/NKD providing most of the boost.  NKD is still languishing below the .886 Fib, suggesting more downside ahead.  But, the chart pattern indicates a good chance of a breakout to the white .786 or .886 first.  I believe TPTB are keeping this card in reserve and will play it in the event of any undesirable downside moves.

USDJPY, likewise, seems stuck at the 2.24 extension, but seems to have found support at the 1618.  Like NKD, a breakout is just a key stroke away.

And, that pretty much sums up the markets lately..  We (sometimes) get a burst or two of “honest” market movement in the opening minutes, after which the central planners and their hedge fund lackeys determine which way stocks will go for the rest of the day — with USDJPY, NKD and VIX as their primary tools.

VIX is at a critical support level, the .886 of the rise from 11.52 to 31.06 beginning on Sep 19.   It tagged this Fib on Oct 31, and closed slightly below it yesterday.  A sustained push below 13.75 would be bullish for stocks.

GLTA.

A link to the webcast of Draghi’s press conference, beginning at 8:30AM EST:

http://www.ecb.europa.eu/press/tvservices/webcast/html/webcast_141106.en.html

As expected, we did have some drama at the .886 Fib, resulting in a pop and drop that was limited to about 6 points by the usual USDJPY/NKD rescue.

For its part, USDJPY reacted at the 1.618 extension as expected, dipping back to the 1.272 before swinging into rescue mode.  ES (the thin purple line) had dropped about 12 points from its overnight ramp job highs when USDJPY firmed up and boosted stocks.

NKD initially declined below the important .886 Fib level (in yellow, below.) Stocks did not react well.  So, they took it back above the line, suggesting that the correction was done.

Note, however, that it fell back below the .886 overnight (as usual) — plunging 165 points.  As long as it remains below 17,068, it suggests further downside.  But, because it was propped up north of 16,740, it leaves open the possibility of a rally to the white .786 or .886 (17,322 and 17,396.)

In short, 17,068 is the Japanese line in the sand.

The algos are driving the futures higher with Draghi’s assurances that the (unanimous) ECB is ready and willing to conduct more easing.  GLTA.

While the talking heads are focused on the election results, it is Kuroda’s latest antics that have S&P futures up 13 points this morning.  Apparently not satisfied with going “all-in”, he emphasized last night that he is more than willing to go all-in’er.

USDJPY shot back through the yellow .786 and nearly reached the 1.618 extension of the drop from Monday’s highs.  Consider me sadder but wiser and stopped out on the short USDJPY call.

Given ES’ action, SPX is pointed right at Monday’s highs.  I’ll be watching to see if we get some drama around the .886 at 2022.

Interestingly, NKD still hasn’t topped the .618 of its drop from Monday.  Keeping the powder dry, or a sign of a pop and drop?  We’ll see.

Keep an eye on the futures action after the cash open for some hints as to the strength of this leg higher.

After spiking higher post-Kuroda’s lunacy last week (1300 points on the 31st alone), the Nikkei 225 ran smack dab into the .886 retracement of its crash from 18,365 to 6,990 between July 2007 and Oct 2008.

It reversed as we expected and has since given up 740 points (4.2%.)  The eminis have since given up a whopping 1.1%.  What gives?

While many tools are used by TPTB to ramp SPX/ES higher throughout the day, NKD is one of the most effective.  Today’s reversal at 11:00 AM was classic. First, some background.

ES is more than happy to rise in lock step with NKD when it’s on a tear.  And, any time stocks are in danger of declining more than would be acceptable, you can count on NKD and USDJPY to reverse higher (along with VIX reversing lower.)But, that would leave NKD and USDJPY on a perpetual rise.  And, well, people might notice how strange that is — might even question whether it made sense (but, probably not.)

So, after the futures close (4:15 PM NYT), NKD and USDJPY typically go back to where they started.  ES, on the other hand, is easily propped up in the after-hours, when volume goes from the normal pathetic to practically non-existent.

The result: a one-way street where stocks get all the gains from NKD, but very little of the pain.  And, there you have it: an unrigged market, courtesy of central bankers.  Ain’t life grand?

Next time you’re trading along, minding your own business, and your short position suddenly starts taking on water — check NKD.  There’s a pretty good chance Kuroda/Yellen/Draghi and their lackeys have decided to:

• stabilize the economy
• prevent deflation
• decrease unemployment
• rig the markets.

It’s another election day.  As always, I find myself wondering if anything will come of it.  Get the money out of politics, and maybe…

In the meantime, enjoy this little clip from satirical genius George Carlin — who insists that if you do vote, you don’t have anything to complain about.

Yesterday’s call for a reversal in USDJPY and NKD was spot on.  It remains to be seen whether US stocks will follow suit.

USDJPY hit the large scale .786 and reversed back below.  A mild, bullish reversal to the yellow .500 Fib at 111.55 would undo most of the post-QQE expansion rally — when ES was 1970ish.  While a garden variety reversal to the .618 would point to 105.57, undoing the Oct rally altogether.

Needless to say, the impact of the carry trade has been greatly skewed to the upside.  That is, USDJPY rallies nearly always get a 100% response from stocks.  While, USDJPY declines tend to take place in the after hours, when ES is more easily propped up and the impact is muted.

NKD reached and reversed off the .886 as expected.  I see no reason why it won’t return to at least the .786 at 15,931.

Since our capitulation call on Oct 15, I’ve wondered whether we’d see another Feb 2014-type rally.

Cue USDJPY for emergency hockey stick operations.  All Fed presidents, report to CNBC.  Mr Buffet, please report to makeup.  Should be a heck of a bounce from here.

In fact, the past two weeks have been even more aggressive — aided, of course, by the Fed, the ECB and the BOJ.  The tougher call is whether the rally can continue in the face of USDJPY/NKD digesting their gains.

Next, some key levels and what the future might hold for SPX. (more…)

Keep an eye on VIX, which completed a bullish (bearish for stocks) Bat Pattern Friday.

This, as USDJPY just tagged the .786 retracement of its slide from 124 to 75 between Jun 2007 and Oct 2011……and, the Nikkei 225 (futures) just tagged the .886 retracement of its crash from 18,365 to 6,990 between Jul 07 and Oct 08.

This is another moment of truth for the Japanese carry trade.  While it’s hard to bet against the momentum exhibited late last week and the (by now, obvious to everyone) script for further coordinated bubble inflation written by central bankers around the world, I would be very leery of chasing this rally.

I think the goal is to establish new all-time highs in all the major indices (SPX just missed on Friday) in time for tomorrow’s elections.  After that, we should see at least a retracement of last week’s spurt higher.

If I’m wrong, the 1.618 extension of 1576 to 666 is up ahead at SPX 2138 (3-4 days at the pace set the past two weeks, but May 2015 if the rising white channel holds.)  Though, there is no reason to expect a serious reaction there as long as the algos and central bankers are in charge of the day to day (remember 1823…)

If 2020.04 were today’s high, the first downside target would be to close the gap at 1994.95 – also the .786 of the spurt higher from 1987 — though we should expect a bounce at 2000 first.

GLTA.