Last Halloween, the BoJ treated the “markets” with an enormous increase in QQE that sent USDJPY soaring 15% over the next few months.  Thanks to the magic of the yen carry trade, it stopped the October meltdown dead in its tracks and enabled stocks to reach new all-time highs.Last night, with most pundits expecting a repeat performance, Kuroda & Co balked.  No increase in purchases.  No expansion of allowable investments. No new fuel for the carry trade fire. Nothing.

USDJPY, predictably, fell back below the SMA200.  Just as importantly, DX fell back within its falling channel. About the only thing propping up stocks this morning is good old-fashioned currency manipulation.  That’s right.  The BoJ didn’t discontinue that!

While QQE certainly supports a cheaper yen, and the BoJ’s direct purchases of stocks (which will continue as before) obviously prop up the “markets,” it’s the act of manipulating the USDJPY higher that has enabled the yen carry trade’s success.

It has, can, and will continue to be utilized to push stocks higher and prevent dips whenever they see fit.  The only question is whether the rest of the carry trade investing world will stay the course given last night’s inaction by the BoJ.

We’re talking trillions of dollars around the world that are directly and indirectly tied to a ever-cheaper yen.  Right now, some of those investors are quaking in their shoes.  The risk is a tsunami that even the highest seawall can’t contain.

continued for members…

Our targets remain unchanged from from the past few days.  The downside case just got a lot stronger — with my favorite target being the SMA100 at 2037.08.

Though, this being the last day of an already profitable month, I wouldn’t be surprised if TPTB can eek out a break-even day or even manage to push higher to the .886 first.

I haven’t recommended true swing positions much lately.  This past week or two is a great example of why: overnight ramp jobs and a great deal of currency manipulation that has run counter to chart patterns and news flow.

But, with the ECB, FOMC and BOJ having shot their wads this past week, I don’t see any fundamental reason why SPX should make new highs anytime soon.  If you’re a trader, we should see plenty of opportunities ahead.

If you’re a swing trader, this is probably a great time to establish a short position and be prepared to hold it for a while.  If you’re a buy and hold investor, either sell, buy protective puts or at least rein in your risk.

As mentioned above, currency manipulation will go on.  But, depending on how investors take the lack of additional carry trade fuel, this could get ugly.

UPDATE: 1:48 PM

Between USDJPY and CL, it appears they’re going to force SPX through the overhead resistance shown below.  As mentioned before, the .886 is up at 2104.21.  I don’t see SPX getting all the way there, as it would bring additional selling pressure to bear.  But, traders should be aware that a push above this TL could easily result in a 9-10 point pop.For traders, a stop in the 2094ish area would make sense intraday.  Playing the long side would be okay, as long as you use tight trailing stops.  And, for all but very risk adverse traders/investors, I think Monday will deliver some strong downside and would consider a short position over the weekend if it’s within your risk appetite.

CL, in particular, seems vulnerable to a strong upside move.  Note the IH&S potential.