SPX closed yesterday at exactly the bottom of its rising channels — this after a dramatic reversal at the upside target we forecast earlier in the morning:
SPX looks likely to reach the purple .886 at 1983.17 — also the bottom of the original falling gray channel.
The talking heads offered many explanations. But, as usual, they left out the most important: the yen carry trade.
USDJPY had surged past the key .618 Fib at 120.11 and even topped the SMA200, with SPX tagging along behind, wagging its tail. When USDJPY faltered and dipped back below the SMA200, however, the rally quickly came undone — just like it did early this morning. Equity markets are not amused.
continued for members…With USDJPY back below the SMA200, it’s no surprise that ES’ perfectly formed rising channel has technically been broken.
If USDJPY can’t retake the SMA200, look for SPX to sell off, likely testing the yellow .236 at 1930.25 or the white .786 at 1927.80.
It should be enough to prompt a swift USDJPY recovery. But, if not, then the red .786 at 1894 or .886 at 1881.43 are suddenly in focus. And, the rising purple channel would be broken.
USDJPY is certainly acting as though it expects to decline.
If USDJPY regains the SMA200 and SPX holds its channel, the overhead resistance includes the SMA10 at 1953.57, followed by the red channel midline at 1963ish. Any significant breakout targets the yellow .618 at 2032.45.
Remember, though all this, the goal is to get the BoJ off the dime and start devaluing the yen again. No doubt TPTB deem a little (or a lot of) short term pain as well worth it. BoJ MTM coming up next Monday/Tuesday.
So, today and tomorrow are the last days left to impress upon them just how important a cheaper yen is to stocks. In that spirit, here’s another scenario I’ve been mulling over:
Recall that the .886 at 1856.46 never was tagged on the 24th. The plunge was interrupted. If it were to resume today or tomorrow, leading into the weekend over which they will be forming thoughts about next steps, it might just be the incentive they need.
And, a reminder, I have to duck out around 10:30 this morning for a couple of hours. I’ll post up until then, and should return around 12:45 or so.
UPDATE: 10:48 AM
Quick update: It was touch and go for a while, but SPX has held the channel so far. Just ran into the SMA10, so this is the first test of the day. If it pushes through, the red midline is just above at 1963ish and gray channel bottom at 1978 or so. A push through there would face the SMA20 at 1992.16 and then the yellow .500 at 2000.86.
UPDATE: 2:52 PM
Probably heading back down to the channel bottom, which will be 1945 at the close, though it would have to drop through the SMA10 first. I’d want to participate in any final hour ramp that takes it back above 1964ish. 
USDJPY was no help at all, but is holding its own at the purple channel line we flagged earlier. Will likely go sideways into the close at 120.5ish.
CL, on the other hand, took over levitating duties — even has further available upside.
I still like the idea of a sell-off tomorrow, with all these triangles breaking down — a final chance to drive the point home to BoJ. For all I know, they’ve already decided one way or the other. But, if not, a sell-off tomorrow would be just the ticket…
After all the data this past week, I’m even more convinced that the FOMC won’t increase rates next week. Again, another leg down Friday or Monday might be helpful in getting to that result.
But, I’m certainly not wedded to the idea. All things being equal, it’s more likely to occur Sunday/Monday.
Going to focus on getting those other charts up for the remainder of the day, and will be back with an epilogue after the close.
UPDATE: 3:49 PM
