The rebound yesterday held fairly well, but USDJPY weakness this morning is softening up the futures.  Here’s the recap on SPX, showing the TL from 2012 holding, and a probable test of the 20 and 50 day moving averages at the purple .618 if the bulls can keep it together.

There’s clearly much more downside potential if the red TL doesn’t hold — with the SMA200 coming up on the white .618 toward the end of the month.

Whatever the impetus might be left in last week’s move, the USDJPY algos are clearly back in charge. The eminis won’t make a move without it — though sometimes the AUDUSD, VIX or ZN’s come into play.

The USDJPY tagged its SMA100 this morning, after failing to retake the SMA200 yesterday. I don’t see any serious impediments on the chart, as the BOJ has reestablished an upward trend for the pair.  And, the Japanese economic data is worsening daily.  But, with all the moving averages bunched up like this, we’re likely to see plenty of chop in the days ahead.

Lots to catch up on after a week off… starting with last week’s big decline and (so far) recovery.  It wasn’t really that big.  But, when declines are so few and far between, it sure felt like it.  Check out SPX, which (finally) tested the trend line off the 2011 lows.

Looks pretty straight-forward, but it’s not.  In order to accommodate the Nov 2012 lows, the TL misses all of the 2013 and 2014 interim lows.  If we raise the TL a bit to catch at least the 2014 lows, then last week’s dip was below the TL, and the rebound through this morning is a backtest.

To further complicate matters, those are logarithmic charts.  In arithmetic mode, the TL fit is fairly bullish…

…especially, when considering the moving averages.  Note the SMA100 tag, and the SMA10 which is being tested this morning.

It’s pretty clear to me that the algos are back in control this morning, with USDJPY/NKD ramps handily thwarting any attempts to digest any of the overnight gains. Bottom line, last week’s decline seemed rather contained/controlled.  My gut tells me it was permitted in order to bring a semblance of normality to the “markets” — to squelch the [quite accurate] criticism that the rally is being engineered.

More later.

What a day to be on the road!  I’m still traveling, but here’s a quick shot of yesterday’s and last night’s action. Note the long-term support TL in log scale.

The ES channel holds up pretty well, too.  And, while SPX overshot its 1.618 Fib, ES came in pretty close.  In other words, the fireworks are probably over.  We’ll likely be in rebound mode from here on out — assuming the plunge protection team is back in control. If so, then – in one fell swoop – TPTB can silence the technical/chart types such as yours truly who decried the ludicrous lack of downside moves.

If things worsen in global banking, then there’s plenty more downside where yesterday came from.  SPX’s 100 day moving average is way down at 1910.  And, the SMA200 is 1857.  The past year has been characterized by moves that stop on a dime — or, more frequently, well short of their chart pattern/harmonic targets.

It’s hard to say whether this is the start of something bigger, or whether TPTB was simply silencing the critics in the midst of a low-volume period when no one was watching (and, they themselves were well positioned in advance.)  But, if prices should move lower, I would keep in mind the possibility of a snap-back.  USDJPY has been pedaling furiously to keep things on an upward trend.

A reminder, I will be on vacation all next week.  But, I’ll post once in a while if the fish aren’t biting.  GLTA.

Last night’s ramp job on the back of USDJPY, which sliced through the 100 and 200-day moving averages like they weren’t there, took ES most of the way.  The 4% GDP (ex-items?) print did the rest.  ES is sitting at an 8-pt gain prior to the open.

Caution is warranted, as yesterday’s close marked the 3rd H&S Pattern in a row to complete without playing out (so far.)  The USDJPY/NKD ramp is BS, of course, as Japan’s industrial production fell 3.3% last month (versus 1.2% expectations.)

Still, the pair broke out.  If it can remain above the SMA200 long enough for the other averages to turn up and break the bearish alignment, it could drag stocks higher.  And, why shouldn’t it?  With the BOJ depressing the yen and actively buying stocks, it’s only a question of whether or not it fits their plans.

USDJPY, having dutifully provided yet another overnight ramp job for ES, pushed up to tag the SMA200.  Note that the daily averages are still in a bearish alignment, though the 10 (red), 20 (gray) and 50 (blue) have recently curved up.

If the pair can push through the SMA200, stocks should follow.  If it pushed up much at all, it will have broken out of a very old triangle and would have potential to at least the .618 Fib at 112.37.  If not, the “market” is long overdue for a breather.  The last time USDJPY reversed off the SMA100 (July 3) and fell through the SMA200, SPX swooned by 33 points — a calamity by today’s Fed-inflated, volatility-deprived, algo-driven standards.

The BOJ and algo houses have propped up the USDJPY for months — particularly post May 2, when the rising white channel officially died.  The BOJ sees a lower yen as the key to increasing exports.  But, inflation is getting out of hand — killing off consumer spending at a time when tax revenue is sorely needed.  Algos use USDJPY as the basis for the largest carry trade out there — probably in the hundreds of billions if not trillions.  The cracks are starting to show.

Friday’s conditions remain despite the late session VIX beat-down.  USDJPY’s SMA100 did, in fact, cross below the 200.  So, the daily SMA’s are all bearishly aligned — in addition to the TL resistance from the EOY highs.  The attempted break-outs over the past few sessions have gone nowhere.  Keep an eye on TL support at 101.76.

ES is playing its cards close to the vest, with the channel from Thursday and Friday yet to give up the ghost.  Our downside target remains until it can at least break out of the channel.  If things get going, ES 1959 is easily within reach, possibly 1956 or 1952.

Amazon and Visa earnings should weight on markets today, but USDJPY is making a bid to blow through resistance.  This is critical, as the entire yen carry trade is at stake.  It was easy enough to burst through resistance overnight…

The daily chart shows the 100 and 200-day moving averages coming up on a potential cross, which would leave the 10, 20, 50, 100 and 200 all in a bearish alignment.

ES has completed a little H&S Pattern, but has more downside potential if it’s permitted to get going.

UPDATE:  2:00 PM

ES tagged our H&S target, might be aiming for the Fib cluster at 1963-1964 (SPX 1968-1970.)  Decent channel support there, too.

Wednesday, the dip came early — with ES giving up 5 points early in the session before rebounding.  A Bat Pattern completed at 3am, sparking a 9-pt ramp job and continuing the “market’s” practice of making important reversals in the after-hours.  The net: hold overnight at your own risk, because the close is likely to be a head-fake.

Interestingly, the futures have declined since the better than expected initial claims.  And, this on the biggest POMO day of the month. Go figure.

UPDATE: 10:15AM

Guess we know why the weakness on the opening, despite huge spikes in USDJPY and yields: the craptastic housing report was obviously well-known by some prior to the opening.  Like last June, no polar vortex, high interest rates or boogie man to blame it on…  From Zerohedge:

In fact, it probably explains yesterday’s weak close, below the TL for SPX.  It’ll be interesting to see whether such dismal economic news can provoke even a small sell-off.

Interesting historical note: the even worse July 2013 report was released on Aug 16.  SPX, in the middle of an 83-point, 18-day slump, fell 9 points on the day.  It was on the heels of a month-long correction that began on May 22 and knocked 126 points  (7.5%) off SPX.  At the time, the Fed was pumping $85 billion per month into the banks’ coffers (though Bernanke had already used the “T word” in June.)

The Fed is pumping $4.5-5.75 into the “markets” today and tomorrow — making it easy for stocks to ignore war, earnings, inflation, interest rates, etc.  The past two days have been almost carbon copies of one another:

1. sharp dip on the opening on bearish news to head-fake any bears left standing
2. relentless algo-driven melt-up for several hours (USDJPY and VIX based)
3. strong sell-off near the close to head-fake weak bulls into selling
4. ramp job overnight to punish them for selling

As usual lately, the reversals are coming at seemingly random spots.  But, a closer examination reveals what I believe is a calculated attempt to punish traders.   They’ll put the brakes on just short of Fib levels, blow through back tests, reverse before reaching established trend lines, and sell off immediately after making new highs — which leaves those of us who rely on chart patterns or technical analysis grasping for straws.

For a while, they were targeting only bears.  Now, it’s grown to include anyone who doesn’t simply buy every dip and hold long overnight.  The answer is simple: buy every dip and always hold long, right?  That strategy has certainly paid off better than trying to exploit any downside moves. The chart below shows just how treacherous trading has been for the past month.

The purple grid, including a completed IH&S Pattern that never failed at the neckline, was a total head-fake to bulls and bears alike.  It remains to be seen whether the red IH&S, also completed, will play out or whether we’ll churn some more.  The larger channels, BTW, have become almost meaningless lately.

History tells us that a crack in the markets is a question of “when” and not “if.”  In the past, whenever bearish capitulation was complete, TPTB have allowed (or engineered) a strong downturn that flushed buy-the-dippers into oblivion — the better to induce the Fed into continuing the gravy train.  Will this time be any different?

I will be out most of the day tending to family health matters.  Any prayers would be much appreciated.

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USDJPY reacted at the falling TL we discussed yesterday, but immediately rebounded to push stocks higher.  It plummeted overnight, when it didn’t matter to ES, and will probably rally up through its moving averages again today in order to facilitate the continuing melt-up.

As discussed yesterday, the dip at the close was yet another head-fake.  Is it any wonder volume has dropped to laughable levels?  It was followed by the USDJPY driven algo which kicked in around 4am ET.  Keep an eye on USDJPY this morning, as it just tagged a TL off the Jul 3 highs and might have trouble punching through during market hours.

Also in a position to break out or break down: ESU4.  It topped the IH&S neckline we’ve been discussing (also overnight, naturally.) It targets ES 2005.  But, remember, these patterns have been extraordinarily unreliable of late.

We have CPI at 8:30 and Existing Home Sales at 10:00.  No POMO today, but a big day tomorrow. GLTA.

UPDATE: 8:50AM

USDJPY in plunging, 10-yr rates are plunging, EURUSD is soaring — but ES is being propped up like there’s no tomorrow — defending that IH&S neckline after gaining 3.5 points on the news that (IMHO) we’re entering stagflation territory.

Looks like another day of the “market” being run by the programmers…