Charts I’m Watching: Jan 8, 2015
I guess we’ll call this one the Evans Rally (as opposed to October’s Bullard Rally and December’s Yellen Rally. Last night, Charles Evans told reporters that “raising rates would be a catastrophe” and hinted that the first rate rise wouldn’t come until 2016 or later.
This came barely 6 hours after the Fed’s minutes were released — the same minutes that pointed an accusatory finger at the ECB and BOJ for talking up markets:
In their discussion of financial market developments, participants observed that movements in asset prices over the intermeeting period appeared to have been importantly influenced by concerns about prospects for foreign economic growth and by associated expectations of monetary policy actions in Europe and Japan.
Oh, well; it ties a nice, pretty bow on our forecast. Yesterday’s call was for a backtest of the rising wedge lower bound. From the members’ section:
The biggest obstacle will be that white TL off the October lows. Originally support for a potential rising wedge, it is now resistance. I show it at around 2020-2022, which would mean a pop and drop this morning. If SPX is able to clear it, then it should be good for a return to test the SMA50 and/or SMA20 at 2041/2044. Otherwise, our downside targets start to look more interesting.
So far, SPX is following that script pretty closely. The original backtest was at 2024 (in white, below), a smidge over our target, whereupon SPX tumbled to 2012 before being rescued by USDJPY.
This morning’s surge looks likely to reach the SMA20 and/or SMA50 (in yellow) with the next major upside resistance the purple channel midline where it intersects the purple .618 and SMA10 at 2057ish.
But, there’s a development that could undermine that thesis quite easily.
continued for members…USDJPY, which provided the boost needed to regain the rising wedge TL, is nearly back to the key .618 at 120.11 (yellow target.) If it hesitates, or reverses, forget about a continued rally for SPX.
I suspect the sell-off in the last hour has been all about legitimizing the rising purple channel within the larger white channel. But, the red channel is a factor to contend with until USDJPY breaks out — if it’s going to. The bigger picture:
Keep an eye also on TNX, which continues to climb out of a hole…
….and CL, which failed to clear the white .786 as discussed yesterday…
…and, last but not least, EURUSD — which is on deck as the new carry trade vehicle of choice.
Its decline — and DX’s strength — has been bullish for stocks. As discussed before, it broke support in a few different ways. We could make an argument for the small white channel, but it feels a little flimsy.
More later.
UPDATE: 11:28 AM
SPX easily reached this morning’s target, barely pausing at the interim target. I would expect it to run out of steam here at 2058, but I’m not sure if it’s worth shorting. Rarely during these central bank-generated rallies have there been interesting shorting opportunities.
There’s a small IH&S targeting 2068 that’s still in play.
USDJPY is constructing a rising wedge and VIX seems to have reached interim support. DX is coming up on heavy resistance at 93.27, but is already paring back at the moment.
If we get a pullback, it should be to backtest the broken SMA20/50 at 2044ish. Anything more serious — say, with a continued decline from CL — and we’d be targeting this morning’s open gap.
