Charts I’m Watching: Dec 29, 2014

We’ve been wondering for the past month or so whether SPX would take a shot at pushing through the upcoming major resistance at 2138-2145 prior to year end, or hang back in a “safe zone” until after 2014 was in the bank.

2014-11-25-SPX daily 0600The key determinants have been a select few instruments and currencies: VIX, DX, USDJPY, EURUSD and 10-yr notes.  In years past, these were secondary indicators — reflections of the activities in global equity markets.  Now, thanks to the dominance of the carry trade and algorithmic trading, they are the tails that are wagging the stock market’s dog.

As the US dollar has soared relative to the yen and euro, VIX has been beaten into submission, and 10-yr note yields have continued to slump, the carry trade has had the wind at its back.  Stocks have had no trouble ignoring unimpressive earnings, macroeconomic and geopolitical news, and normally reliable chart and harmonic patterns.

So, we’ve focused instead on the prognosis for these determinants in the hopes they might provide a road map for broader market indices.  Back on Dec 3, we set five year-end targets suggested by the charts, most of which have been reached: EURUSD, USDJPY, DX [see: Update on Currencies.]

Screen Shot 2014-12-29 at 6.54.04 AMIn chart and harmonic terms, reaching a target usually suggests a reversal.  Yet, EURUSD has dropped through strong support at our initial target of 1.2263.

2014-12-29-EURUSD daily 0630And, DX and USDJPY are being propped up at our year-end targets (and, important levels of resistance —  DX at 90.272…

2014-12-29-DX 60 0640…and, USDJPY at 120.11.

2014-12-29-USDJPY 60 0640A reversal would most certainly mean an end to the current rally.  Therefore, the fact that they are being held at current levels suggests a continued holding pattern for stocks — at least through the end of the year.

VIX has likely topped out for now, with a backtest of the white channel midline suggesting the next leg will be lower.  As one of the last remaining levers at the Fed’s disposal, look for it to continue sliding — even though the purple .886 has already been tagged twice (though 16.75 would have been more convincing.)

A drop to 13.09 looks like a foregone conclusion, and a push below 11.53 would easily push SPX above 2100.

2014-12-29-VIX daily 0800TNX, as we’ve previously noted, reversed at a short-term TL connecting the past month’s tops.  There’s a pretty good argument for completing an A=C move up to 25.70ish. Though a slide to the pale blue .886 at 19.28 looks just as likely.2014-12-29-TNX daily 0840Herein lies the chartist’s dilemma — which indicator determinant to believe.

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