I’ve been watching the THBJPY as an indicator of our EM thesis playing out.  It’s been a pretty good measure of risk appetite (aka Abe’s ability to trash the yen and send hot money scurrying into peripheral markets.)

Like USDJPY, it has rolled over but is being propped up.  The latest stick save came moments ago.

It’s tough to do when the Nikkei is under the kind of pressure it is to complete the right shoulder of its H&S Pattern…

…not to mention the pressure the yen faces since the EURJPY channel broke down.

And, yes, that’s a backtest of the .618 fib of the 2008 to 2012 plunge from 169 to 93.  But, I digress…

THBJPY’s small, white rising channel is trying to hold back a very serious plunge to 2.8 or lower.  Since the rising purple channel broke down around New Years (when most equity markets topped out) the falling white channel has been in charge — but, ran into the midline of the rising white channel for a third time.

It looks like a bit of a standoff until you look at the moving averages.  The SMA50 (blue) fell below the SMA100 (yellow) in July 2012 and the SMA200 (thick red) in Sept 2012.  It bounced back above the SMA100 in November, but crossed back below on Tuesday.

At present, it’s a very bearish alignment of the 20, 50, 100 and 200 — with the SMA10 threatening to roll over.  The last time even the 10, 20 and 50 were in perfect alignment and plunged below the 100, the THBJPY dropped 12%.  This time, they’re below the 100 and the 200 — which, to my eyes, is rolling over big time.

A similar move would take the pair down near the purple .618 at 2.80.  But, of course, it depends on how many fingers the BOJ can come up with.  At present, they’re plugging holes in JGBs (witness yesterday’s bought auction of 40 years at 1.75%), USD (another stick save at 1.20 today for USDJPY), bhat, won, ringgit, rupiah, rupee, Thai and Singapore dollars, etc.  Debt:GDP was around 244% at YE2013.

While Abe is doing all he can to trash the yen, events around the world are conspiring against him.  All those yen he created flooded into other economies, which are now rolling over (Thailand, Singapore, Philippines, etc.)  As risks elsewhere rise, that hot money flows back into the yen — now a safe haven.yen

The afore-mentioned euro weakness will add to the challenge — as will the Chinese recent decision to join the beggar-thy-neighbor game.  Remember, China and Japan are each other’s biggest trading partners.  As the Renminbi slumps, it will also pressure the yen higher.

Stay tuned…

USDJPY backing off the .382 Fib…  Will this falling channel hold?

The THBJPY is approaching another important test.  If the channel doesn’t hold, the downside is considerable.

The last time SPX made a new high (1850.84 on Jan 15) it promptly dropped 113 points (6.1%.)  Is there reason to believe the new highs will stick this time?

Let’s start with the carry trade on USDJPY — which has retraced barely 38% of its drop from its EOY highs.  Remember, 105.43 represented a .618 retrace of the 2007-2012 plunge and the .618 retrace of the 1996-1998 gains and a TL from the 1998, 2002 and 2007 highs.  This was a very significant top.

The carry trade has been in place since mid 2012, providing very strong correlations between SPX and USDJPY.

Why the decoupling since the 2013 year-end highs?  And, which will revert to the other’s trend?

Likewise, the 10-year note stalled at the .382, a serious decoupling vs the SPX.

And, it’s having trouble climbing back above the TL connecting the June 2007, April 2010 and Feb 2011 TNX highs.

Speaking of decoupling, how about the DJIA and SPX?   The Dow, which is approaching a .786 retrace of its EOY highs at 16,315 and the Butterfly Pattern target of 16,300, is well off the pace set by SPX.

more later…

USDJPY got the usual overnight ramp…

…which produced a somewhat muted response in ES (so far.)

We’ll know soon enough whether or not equities are due for a new high.  But, remember, every major index that I follow has reached an important Fib level (Bat, Butterfly, Crab Patterns) retracement of their 2007 highs.  And, many have reached an important Fib level retracement off their late Dec highs — as well as an important trend line off their 2011 and/or 2012 highs.

Lots of choices in terms of downside Fib levels — both within the rising purple channel and beyond.

Given that today is OPEX, we might not see any movement until Sunday/Monday.  Coming up, my favorites.

Quick aside, is Meg Whitman’s head really that large?

Maybe a psychosomatic reaction to repeating the mantra that the PC business is going just great…

continued for members… (more…)

USDJPY provided the stick save overnight yet again, with the small flag pattern holding thus far.

For equities, we’re at a crossroads of sorts.  The bulls are working very hard, and propping up markets everywhere to cast recent moves as signs of higher prices to come.  While, the harmonics argue otherwise.  Who’s right?

continued for members… (more…)

A little movement this morning with the intensifying trouble in Ukraine and dreadful housing numbers here in the US.  Yesterday’s USDJPY ramp has largely vaporized.  Still, it changed the trajectory of the pair somewhat.

The e-minis, which already left the acceleration channel with yesterday’s water treading, appear to be rolling over.  A break below 1830 would be a good start.  But, let’s not discount the obvious intent to prop this sucker up.  And, that’s where the headline news comes in.

I often think of markets like elections.  The hardcore bulls and bears probably won’t be swayed.  It’s the folks in the middle who decide which way it goes.  If the headlines out of Ukraine, Thailand, China, Fed Minutes, etc. are bad enough, the selling pressure can become too intense for TPTB (and, for those opportunistic players who’d rather make more money than toe the “markets are fabulously healthy” line.)

Otherwise, the bulls will top the Dec highs (on SPX and COMP anyway), as the Fed minutes are unlikely to provide the bears much useful ammunition.  The market, it seems, is more than willing to ignore the impact of the taper — or, to believe that it will vaporize at the first sign of trouble.

UPDATE:  3:50 PM

Dow’s off 75, SPX off 12…  Even the hint of rising interest rates is enough to spook the markets.  More importantly, the issues in Ukraine has refocused attention on EM.  The IMF is calling EM a crisis…

Just took a fresh look at the transports…  Immediate support at 696.50 (an 8.25% decline from the top.)  If that doesn’t hold, no support until 639.87 — a 15% decline (equivalent of 1573 on SPX…the 2007 high.)

Next test for ES should be 1800-1807.

No real change from last Friday.  The holiday weekend ramp job hasn’t developed into anything yet, thanks to a dismal Empire State Manufacturing Survey.

The USDJPY is helping to boost stocks, but is in danger of fading back into the falling purple channel.  Though SPX has retraced .886 of its 2014 losses, the USDJPY itself has barely topped .382.

The USDJPY completed another H&S Pattern — that hasn’t yet played out.

A reminder of the bigger picture.  The yellow channel midline remains the next big test.

Though the yellow channel is a sloppy turd of a channel, the midline has held repeatedly throughout Abe’s magic carpet ride.  The rising white channel — somewhat better defined — intersects with the yellow midline in late Feb/early Mar.  We’ve backtested the .236 line, so the bottom is the next support and should arrive sooner than later.

If the pair pushes down through the yellow midline or white bottom, things get interesting real fast — with the purple midline down around 93-94 and a bunch of Fib lines gathered around the yellow channel bottom at 91ish.

The falling Nikkei has obviously helped strengthen the yen.

Support is coming in the form of the purple and yellow midlines.

But, again, if those don’t hold — or if we merely get a bounce there — the downside is considerable.

UPDATE:  1:26 PM

ES just completed a Bat Pattern at its .886 (1833.50.) SPX should do the same shortly (1837.97.)

DJIA finally tagged its .618… 16,158 should be about it.

The big picture is compelling…beautiful symmetry around 10,000 in late August — about a 40% drop from the top. The intersection of the purple channel midline, the grey channel midline, the red channel bottom and about a 61.8% retrace of the 2009-2014 rise at a psychologically important number.

But, TPTB would never allow it, right?  That would be nearly a 40% drop from the top — comparable to Sep 08-Mar 09 (but, perfectly in keeping with our USDJPY model.)  Unthinkable.

How about 13,317 (-19%.7%) in the same time frame?  Say, at the intersection of the yellow .886, red channel midline, purple channel .786 line, and grey channel .786 line.  A pullback to the .886 is very commonplace for completed Butterfly Patterns.

Even a boring old company like MMM (a great proxy for the broad markets) looks like it’s corrected its year-end excesses and is ready to return to earth.

Will the market fall apart Monday?  Will Tom DeMark’s 1929 play out?  I have no idea, but the charts are certainly quite negative, and complacency (along with margin debt) is very high.  The risk of something ugly happening is very, very real.

Oh, yeah.  Happy Valentine’s Day.

USDJPY is on the move, back below the long-term TL at 102.  There should be some support at the previous low of 100.76, but the yellow channel midline is the next major test — probably today or tomorrow.

The e-minis have been stingy in giving back gains — with, so far, just half of USDJPY’s  .500 retrace of the run up between Feb 5-11.  Most important is the broken white rising channel line.  Potential support at 1801, 1793 and 1787 with major support at 1775-1777.

Still, this was a .786 retrace of the move down from 1846 to 1732 and, as such, might be complete.  Our thesis remains that EM weakness will drive yen strength relative to the dollar and dollar strength relative to the euro — a combination that, in the past, has produced some stellar shorting opportunities.

It’s also worth noting that the 1929 analog discovered by DeMark and popularized by McClellan is supposed to be playing out today.  From Spindrift Capital’s January investor letter:

From the Sep 3, 1929 top, the Dow declined for 25 sessions, then retraced 58% of its losses by session #30.  The bottom then fell out, and it lost 50% of its initial value by November 13.

By comparison, the modern-day Dow declined for 24 sessions following the Dec 31, 2013 high (25 if not for the MLK holiday.)  As of today – the 29/30^th day – it has retraced 56% of its losses.  A 50% decline from its recent highs would land the modern Dow at 8,294 – erasing about 80% of its gains since 2009.

However, the analog doesn’t suggest an apples-to-apples comparison.  The 1920’s runup was much steeper than we’ve recently experienced.  The Dow quintupled, averaging 25.2% between 1921 and 1929.  That initial 25-day drop was 18%.  Since 2009, the modern Dow averaged a measley 20.6%.  And, the drop since the recent top has been only 7.5%.  So, both the price and timing are off at least a little.

In case you’re wondering, the 1929 Dow survived its 9-week 50% decline, retracing about 50% of it over the next five months – before really getting started.  By the time it finally bottomed in July 1932, it had shed about 90% of its value.  It took 25 years for prices to return to their 1929 highs.

While the 1929 analog is interesting, I’m partial to the period of 1963-1978 as a guide to the next year or two.

UPDATE:  2:45 PM

USDJPY bounced off a potential neckline and is approaching the .618 of the last little leg down as it backtests the neckline of this morning’s H&S pattern.

The key remains the red, dashed TL — which is once again below the pair.  Interestingly, DJIA is getting enough of a boost that it’s approaching the exact retracement exhibited in the Sep 1929 analog: 58.38%, or 16,069.

Note its more docile behavior relative to the irrationally exuberant SPX, which seems intent on reaching its .886 at 1837.

Even high-flying AAPL has only recouped 61.8% of its losses from 575 — backtesting the broken neckline and running into a TL from the top in the process.  Next downside target: 460-475, followed by 408 in May if the rising white channel breaks down.

UPDATE:  3:50 PM

BTW,  financials have only retraced about .618 of their losses since reaching our .500/.886 Fib combo target.

In short, SPX is going it alone based on the USDJPY bounce that — after all is said and done — is merely creating another H&S Pattern.

USDJPY has backtested the broken .236 channel line.  It has recovered  about .382 of its 12/31 high…

…while SPX (1826) and ES (1822) are coming up on their .786’s.

Unlike the Dow, which is having trouble punching through the .500.

EURUSD is showing weakness this morning.  If the 1.355 level doesn’t hold, it’s a long way to the other side of the channel to 1.29.

Update:  3:30 PM

Trouble in store for the Nikkei.  Remember, it just tagged the top of a channel dating back to 1991.

In this close-up, we see that the 2013 leg up recently broke down.  Now, that rising channel has been back-tested and is ready for a reversal.

Just in time to contribute to the USDJPY plunge to below 100 — looks like it could be any time now.