It was a strange economic news cycle over the weekend. The highlights:
- The Boston Fed suggests that QE become a permanent fixture in the central planning toolkit.
- China is openly discussing jumping on board the QE bandwagon with direct purchases of local bonds and adding “unconventional policies.”
- Japanese businesses increase the volume of their opposition to QE expansion and further yen depreciation.
- Japan is downgraded by Fitch from A+ to A.
It’s this last item that, in addition to being chuckle-worthy, has sent the yen tumbling this morning — just enough to spike USDJPY past the SMA100 for yet another test of the rising white channel bottom.
Not to be left out of the party, CL has jumped by nearly 1% in early morning trading.
The futures are naturally higher, currently indicating +7 in pre-market trading.
continued for members…
Look for SPX to at least test our 2125 stop this morning. I still see a retrenchment before the next leg up, so I’d give it a little leeway before bailing on a short position.
I suspect this tick higher is more about establishing a nominally higher high and busting bearish patterns than about taking a run at 2138 just yet.
The keys, as usual, are USDJPY and CL. USDJPY should reverse at the SMA100 and channel bottom — but, that didn’t stop it last week when it pushed right back into the channel and above the moving average on Apr 21.
The CL chart at the top of this post features a fairly logical-looking rising purple channel that neatly tags each of the lows since mid-March. But, it’s important to recognize the alternative channel, drawn in red below, that tags each of the highs.
We have yet to see a significant backtest of the Apr 7 high, and the red channel would easily accommodate one in the next day or two.
UPDATE: 3:40 PM
Nice reversal off the 2125 highs earlier…down to 2107 so far. Support levels are:
- the SMA10 currently around 2108
- the .236 combo with the SMA50 at 2090 (our original target from last week)
- the .382 combo with the SMA100 (and perhaps purple midline) at 2070
