Charts I’m Watching: Jan 23, 2013

Lots of action this morning. We’re finally getting some real downside courtesy of the yen, which is following our evil plan to the letter.  As we discussed back on Dec 27 [see: USDJPY update] when we posted this chart, the USDJPY’s reversal at the top of the channel would mean trouble for stocks.

The 1st time back in 1998 knocked SPX (above in purple) down by 22%.  The 2nd, in 2000, chopped 35% off SPX.  And the 3rd, in 2007, walloped stocks for a 57% loss.

For my fellow Fibonacci freaks, each of those declines was roughly 1.618X the previous one.  And, 57% X 1.618 is 92%. Still trying to wrap my mind around that one

Of the catalysts we suggested for a strengthening yen, each seems to be playing out so far:

The BOJ will have to taper.  IMF Managing Director Shinohara questioned the continuation of QE at a seminar in Tokyo last night.  “As long as progress is being made, there is no need for the Bank of Japan to expand its quantitative easing programme.”

Furthermore, the annual limit of QE has already been reached only 9 months into the program.  And, inflation — especially in food and energy — is becoming more noticeable.  As Zerohedge reported yesterday, it’s beginning to dawn on analysts that the program will be wound down.

Flight to Safety.  Troubles continue to mount in Thailand, where violence is spilling out into the streets.  A state of emergency was declared on Tuesday.  The markets are getting increasingly nervous.

Global funds have pulled $2.8 billion out of Thai stocks and $1.4 billion out of Thai bonds since Oct 31.  The baht is tumbling, and stocks are down 12.5% since October.

China Troubles.  The news on China is increasingly negative, with liquidity issues, a large bankruptcy, and declining PMI headlines in the last few days alone.

Japanese Stock Market.   Japanese stocks have topped and are due for a correction.  The Nikkei maxed out on Dec 31, the same as many other indices.  Though it’s still early, the 7% drop (half of which came today) in NKD since then has even the bulls wondering (but, not technical types who know a H&S Pattern when they see one.)

In sum, the yen is taking off as expected.  And, it’s doing a number on the USDJPY, which this morning lost the acceleration channel it’s been in since last October.

Maybe this time will be different, and the reversal off 105.43 won’t do much damage to stocks.  But, I’m much more comfortable being short.  It’s a long way to the bottom of the ridiculously-steep-nothing-bad-will-ever-happen-as-long-as-the-fed-has-our-backs channel, let alone the Fibonacci targets I’m eyeing.




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