In a maneuver that epitomizes the degree of control central bankers still have over “markets,” the USDJPY landed precisely at the apex of the Pennant Pattern that governed it fpr two month the August 24 meltdown.
This, on the heels of Japan’s worst export data in over a year — more proof of Abenomics’ abject failure, and more fodder for the QQE expansion expectations.
continued for members…
Note that NKD completed the IH&S Pattern we’ve been watching. It targets 20,060 — approximately the white .786 which — if the purple channel is legit, would happen sometime around Nov 5.
Look for SPX to actually reach the SMA100 today. And, if USDJPY doesn’t immediately retreat from the apex, the SMA200 as well. I suspect, however, that benchmark will wait for tomorrow when the ECB announces its expanded easing efforts.
The interesting chart to keep an eye on today is CL, which readers will remember is the other side of the yen-bashing equation. It has clearly left the purple channel and is testing last week’s lows.
UPDATE: 9:32 AM
USDJPY is running out of steam already…
… meaning the tag might not happen on the opening push. Watch for the pop and drop back to the red midline. Traders should short this puppy here.
UPDATE: 9:38 AM
Things are moving pretty quickly… USDJPY is headed for the TL off the recent lows and SMA200 at 119.92. Worth taking a shot at a long position there, which will probably be 2032-2033.
UPDATE: 9:41 AM
USDJPY getting a big bounce here at the SMA100, so it’s back to long on SPX. 
Note that USDJPY still has the 120.11 card to play. The closer it gets, however, the more leery traders will be of a reversal — making SPX’s SMA100 more difficult to achieve.
CL might have to join in. 
UPDATE: 9:48 AM
USDJPY showing weakness as 120.11 approaches. Maybe it’ll perform a backtest on the Pennant.
SPX badly needs some support here.
CL not helping matters at all. The DOE just reported inventory badly missed forecasts, and is back to April’s levels on no drop in production.
UPDATE: 9:55 AM
Do or die time for this morning’s push. Getting 5-min SMA10 support here. We’ll see if they kick in the algos. They should try to protect the red midline and, especially, the purple .618.
But, the USDJPY movement was, IMO, bungled. Another few minutes of holding it up would have made all the difference.
UPDATE: 10:00 AM
Back to cash at 2032.91. Traders may wish to short it instead. But, I believe it’s just heading for 2030-2031 so USDJPY can tag its own SMA200 and white TL.
UPDATE: 10:08 AM
SPX just tagged the SMA200. Should get support here, so I’d go back to long with tight stops (only because USDJPY is still loitering in no man’s land.)
It would be nice if SPX could tag the rising purple channel midline, which would mean more sideways action for a couple of hours or a quick drop down to the white H&S neckline sooner — presumably to coincide with USDJPY tagging its SMA200.
UPDATE: 10:15 AM
USDJPY has reached the SMA200/TL, so SPX should be safe as long as it holds. But, if CL continues to slide, it’s certainly not going to help. Stepping aside here at 2029.89 until the white neckline/purple midline tag is done.
UPDATE: 10:28 AM
Going long again here at the purple midline. 
UPDATE: 10:34 AM
Either this is a stop-hunting exercise or there’s much more downside potential here. In any case, I’m kinda stinking up the joint this morning. So, I’ll step aside here and try to regroup.
UPDATE: 10:52 AM
I’ve adjusted the rising purple channel and falling red channel, and here’s my best guess as to the correct placement. Note that at 2032, it’s at the red channel top. In an unrigged market, this would represent strong resistance.
But, every one of the many, similar falling channels have been busted over the past 4 years. Every one of them. So, unless the rally is truly over, this one should be busted too. With ECB/FOMC and BOJ all meeting in October, that has to be our base case.
The white H&S targets 2014ish, which is slightly below the daily SMA10. So, that’s a legitimate target.
The alternative is that SPX is just going to bounce around current levels until the SMA10 arrives on the scene tomorrow (it’s gaining about 10 pts/day) and will use ECB’s QE expansion to push through the red channel top.
Ordinarily, SPX would establish a triangle leading up to a central bank expansion, then pop out to the upside as it’s announced. In this case, we have a very gimpy rising red channel that seems to be yielding to the falling white channel and H&S Pattern.
And, USDJPY is offering no support. CL just came to life, pushing back into the falling wedge it broke down from. But, right now everything is as clear as mud.
And, one hard-earned lesson from my trading days is to step aside when the water gets so muddied that you make three bad calls in a row.
If USDJPY gets a nice bounce at the TL connecting the last two lows, I’d consider getting back in on the long side for a bounce. But, it would probably be a short-term trade.
Of course, if it drops below the red TL, I’d be obliged to go short.
UPDATE: 11:12 AM
USDJPY pushing through the red TL, so I’m back to short here until it rebounds. 
ES has 9 points to go to tag its SMA10 (2011.50), so I’ll assume SPX has 2016-2018 in mind as well.
And, as soon as I wrote that, CL spurted up through the falling wedge it broke down from earlier. That’s a 2.2% move in 45 minutes for no particular reason. 
Naturally, USDJPY is back above the red TL.
Back to cash for the duration.
UPDATE: 1:23 PM
USDJPY backtested the broken TL and declined just enough to allow SPX to drop to the red .886 shown below. Obviously, this sets up a slightly larger H&S Pattern. It targets 2012ish, and obviously opens up the doors to the SMA10. If 2022.59 doesn’t hold, I’d go short again — but, I’d watch it very carefully as USDJPY approaches that red TL.
UPDATE: 1:35 PM
USDJPY testing that red TL again…
…and, SPX bouncing at 2020. Surely, it can manage another 4 points??
Note that there are several other H&S options should it bounce enough to put in a right shoulder here. My best guess is that it’ll backtest the purple midline and go down to tag the SMA10.
UPDATE: 1:45 PM
Completed the backtest. The neckline is at 2026 if I’m wrong.
FWIW, ES’s chart — much cleaner and more logical IMO — still hints at the SMA20/50 intersection down at 1970, a 46-point drop from here. 
UPDATE: 2:14 PM
Not happy with the bounce off the horizontal support (or, the extent of the backtest?) USDJPY just spiked back above the red TL (or, should we call it a neckline?) 
SPX is ignoring it so far, but will it continue to do so? Today is showcasing one of the most troubling instances of carry trade manipulation I’ve seen in months.
I’d dump the short position here and consider it again at the neckline if USDJPY is reversing.
UPDATE: 2:22 PM
Didn’t quite make it to the neckline, but USDJPY is reversing. Back to the short side here at 2025.16. Very tight stops.
UPDATE: 2:37 PM
Have a feeling they’re going to blow up the H&S. Back to cash here.
UPDATE: 2:39 PM
This would be the natural place for a better right shoulder to form, but USDJPY is still pushing higher. If it reverses immediately, I’ll short. If not, I’m done for the day. 
UPDATE: 2:44 PM
Here’s the larger, potential H&S that targets 2001. Unfortunately, it would be tough to get it done today. So, it would probably mean holding short overnight. I’ll short anyway, and see what happens because:
- I’m a glutton for punishment
- I’m pretty sure today’s action was all about throwing folks off the scent and precluding us muppets from making money on the downside.
If I’m wrong, and God knows I’ve been mostly wrong today, then USDJPY will probably race up and tag 120.11 into the close, leading SPX up to the SMA100 at 2039.
UPDATE: 3:07 PM
Another push higher by USDJPY is dragging SPX higher. A sustained push through the SMA200 means it’s time to cut the short position loose and go take some aspirin.
UPDATE: 3:42 PM
USDJPY backtested the channel top and is reversing higher. I’ll close the short here, though I’d gladly reopen it if USDJPY will stop propping SPX up. A retest of 2020 — not to mention the H&S target — would easily play out.
I suppose all this probably means that the ECB’s announcement in the morning is likely to disappoint.
UPDATE: 3:29 PM
USDJPY settling back again. 
Enough for SPX to reach 2020? I’ll take a shot at it if USDJPY breaks below the SMA200 again.
ES is threatening to tag its SMA10 at 2011.13, but might wait until after the cash close like yesterday. Every time it got close today, USDJPY shot higher. 
UPDATE: 3:38 PM
ES and USDJPY just broke support, so back to short for 2020ish and overnight for those who can hedge. Remember, the alternative to 2020 is just a SMA10 tag at 2016.09.
UPDATE: 3:48 PM
Safe place to close the short unless you can hedge/watch overnight. I believe there’s a very good chance of lower as discussed above — and, a decent chance of closing at 2016.
The H&S has obviously completed. Needs to close below 2020 in order to validate.
VIX very close to topping yesterday’s highs…