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Central Banks Feeling the Heat

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The past few days have been all about whether the Fed, ECB and BoJ will or won’t step in and calm the markets.  With a better than expected unemployment rate out this morning, the Fed will be under increasing pressure to raise rates, if even a little.

Needless to say, this isn’t helping stocks much.  The futures are currently off 25 points, but the real damage was done yesterday after Japan opened and USDJPY retreated once again from the safety of 120.11.

2015-09-04 USDJPY ES daily 0615It’s pretty clear that stocks have protested each drop through the yellow Fib at 120.11, and each trip above has been rewarded.  While the BoJ wishes it weren’t in this predicament, it is.  And, of course, it’s not by accident.

continued for members…

As far as the bigger picture, I think the BoJ would like very much to establish a flat triangle pattern for USDJPY as they did in 2013.  Look closely at the daily USDJPY chart above and you’ll notice a horizontal gray channel that I believe they’d like to put in place.  It would explain USDJPY’s continued weakness.

SPX should initially test the bottom of the rising purple channel, probably around 1924-1930 — with a slight preference for the latter, the red dot at the yellow .236 Fib.2015-09-04 SPX 60 0615The trick will be holding it as the investors who aren’t already on their way to Martha’s Vineyard or the Hamptons wrestle with whether to remain exposed over the long holiday weekend.

Our analog has called for stocks to break out over the holiday, but in the absence of any hints from Tokyo regarding QQE, carry trade investors are getting understandably nervous.

UPDATE:  9:35 AM

SPX almost got to the lower of our two targets before USDJPY started popping higher.  I have a feeling it’s going to be another one of those days, where every little move is managed by the algos.  In any case, this looks like a recovery, so we’ll take profits on the short position and switch to long.  I’m probably a little early, so trailing stops are a good idea.

2015-09-04 SPX 60 0635UPDATE:  9:51 AM

SPX did, in fact, slide lower.  I’ll play along on the decline below 1924.41, with trailing stops no higher than 1925.  Odds are this is just an overshoot, so be diligent with those stops.

2015-09-04 SPX 5 0651UPDATE:  9:57 AM

Probably spoke too soon.  This will probably be one of those situations where a clean channel bottom is worth more than the Fib. I’ll switch back to long here at 1921.76 with a stop below 1920.  The next support below it is the red .618 at 1915.36.

2015-09-04 SPX 5 0657Again, we’re going to need USDJPY to pop out of the falling white channel in order for this puppy to recover.

2015-09-04 USDJPY 5 0643NOTE: I’m moving the big picture discussion on Japan over to its own post so as to be able to keep it all together.  I’ll have it posted shortly.

UPDATE:  10:45 AM

USDJPY reaching the white channel top and reversing.  Won’t know for another few minutes whether it’s for real or a head fake.  But probably a good time to check your stops.  The purple channel bottom should work — currently around 1920.35 and rising.2015-09-04 SPX 5 0744As far as upside targets, next resistance is the red .500 at 1930 and then the SMA10 at 1943.48.  With those parameters set, I’ll head back to the other post which is arguably more important than the squiggles here.

UPDATE:  11:07 AM

Don’t see this holding.  USDJPY is tanking again, almost down to the white midline.  I’d be reluctantly short here at 1923.8 with tightish trailing stops.

2015-09-04 SPX 5 0807UPDATE: 11:47 AM

So far, just crawling along on no volume at the bottom of the purple channel.  I’m going to go to cash here, close this chart and focus on the big picture.  If it plunges below the channel bottom, I’d want to be short. Otherwise, cash makes the most sense in this environment.  The other post should be up in 10 minutes or so.

2015-09-04 SPX 5 0846UPDATE:  1:27 PM

For anyone out there who’s playing the break below the purple channel bottom, SPX just tagged the next support at 1916.36 we mentioned earlier.  If it’s going to close at the channel bottom, this would be a logical point for a rebound.2015-09-04 SPX 5 1024I’d close the position here and sit out the remainder of the day.

 

Comments

2 responses to “Central Banks Feeling the Heat”

  1. ChristopherEllis Avatar
    ChristopherEllis

    One thing I’ll add is that 2 weeks left to the big futures OPEX and expiry they have to destroy the VIX. They’ve been selling puts and calls at a huge premium and will deflate that premium out. Sadly, derivatives drive the market and not the other way around

  2. ChristopherEllis Avatar
    ChristopherEllis

    Final shakeout here before your zoom up theory plays out. If there is one thing that’s been consistent for 6 years it’s that central banks will stay looser longer than anyone could have predicted. They aren’t going to let it unravel now after a weak jobs report

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