Charts I’m Watching: Mar 18, 2015

About an hour before the cash markets opened yesterday, we observed that crude light was closing in on our long-held 42.51 target. It bounced at 42.63 and was on its way higher when stocks opened trading, prompting us to write:

The bounce has begun, even though CL came up a few cents shy of 42.51. Stops are advised, as a premature bounce sometimes means one last leg down.

We also noted how much of CL’s decline had been conducted in the after-hours, so as not to disturb stocks’ continuing rally. Guess what?

CL did post another leg down. And, it happened right after the close — passing through 42.51 in the very minute before the futures also closed. The 60-min chart:

We also noted as the market opened that USDJPY had dipped below the gray channel bottom for the first time since Feb 26. The degree to which is was allowed to reset would depend on how stocks reacted to CL’s decline and subsequent bounce.

A strong response would allow USDJPY to decline during market hours; a weak or lackluster response would require it to wait until tonight or, as we discussed yesterday, a reaction to the Fed’s statement tomorrow.

Stocks started to falter, so USDJPY was brought right back into the gray channel — and, the falling red channel was broken — for the remainder of the cash session. USDJPY was not allowed to decline to the white channel midline until after stocks had closed for the day.

If the above aren’t grounds for suspicion (if not proof) that these are the most heavily manipulated markets in memory, how about VIX’s actions this morning?

A 4-point SPX decline in the opening minutes was enough to prompt the Fed’s traders to push the panic button, sending VIX plunging from yesterday’s 15.96 close to 13.69 in the first three minutes of “trading.”

It broke the perfect little rising red channel, sending a loud and clear message that significant declines would not be tolerated. Not today, with the Fed release coming up at 2pm.

Oil’s decline has been a godsend for the Fed, which has been struggling to find a way to keep inflation and thus interest rates low in the face of improving headlines. But, it isn’t without repercussions.

The very banks whose bidding the Fed does on a daily basis are rather exposed to oil’s fortunes. So, we rather expect that CL has reached a sweet spot and, like USDJPY, EURUSD, VIX, ZN, etc., will be utilized when needed to nudge the “market” in one direction or the other.

For more, see yesterday’s Update on Oil. And, for how it fits in with the bigger picture including currencies, interest rates and inflation, see Those Wacky Central Bankers.

This being a FOMC announcement and press conference day, we don’t advise trading. SPX typically follows a pattern of consolidation, putting in a triangle of some sort before a very brief and sharp correction, which is then followed by aggressive USDJPY ramping and VIX monkey-hammering that erases all losses and leaves it higher for the day.

But, as we’ve already seen, there is a great deal of manipulation that occurs on these days. That doesn’t mean, however, that we won’t offer some thoughts on likely moves.

continued for members…

Today could be different. If the word “patient” is removed from the outlook (gives me chills, just thinking about it) we might see a tantrum of sorts by the too-big-to-fail crowd — in order to send a message that such headwinds are not appreciated.

SPX is currently lodged between the SMA10 (2070.95) and SMA20 (2089.82) above and the SMA50 (2060.98) and SMA100 (2048.85) down below. The white .618 Fib at 2033.88 is still our immediate and preferred downside target.Brief, wild swings might allow it to be tagged without repercussions, even though it would temporarily complete the yellow H&S Pattern.

As always, keep an eye on USDJPY and CL for signs of what TPTB have planned. USDJPY still needs to tag that white .618, and the 1.618 intersection with the yellow .618 at 120.11 being the ultimate target.

I’ve moved it out to next Tuesday for the time being, as that’s when the bottom of the rising white channel passes through.

UPDATE: 11:25 AM

USDJPY just plunged below the white channel midline, increasing the odds of another leg down in SPX to our 2033 target. If it reverses here at the .786 (120.84), it would set up a Butterfly Pattern to the 1.272 at 120.40 — also the white channel .236 line. It would be a logical place for a bounce on the way to backtest the 1.618 at 120.11 (already dialed in) next week.

But, the fact that TPTB are completely disregarding channel rules by reentering the falling red channel (among others) indicates that the .618/120.11 backtest could come at any time — including today.

CL is providing some cover, but this could turn on a dime as it pushes up toward our 45.80ish target.

The bullish view is that USDJPY’s decline is designed to get SPX down to backtest support at the SMA50 and the white .786 channel line. Alternatively, tagging the SMA100 (presently at 2050.25) would also constitute another backtest of the falling gray channel — into which last week’s decline briefly dipped.

The chart below shows a cleaner view of SPX with daily moving averages and the two most important Fib patterns at the present time. Remember, our moving averages are charted as:

SMA10 – thin red line
SMA20 – white line
SMA50 – blue line
SMA100 – yellow line
SMA200 – thick red line

It also shows the missed opportunity back on Mar 11 for SPX to tag the white .618 and purple channel midline at 2033 — a legitimate bounce point rather than the algo-driven 2039.

UPDATE: 1:45 PM

SPX just tagged the SMA50 at 2060.98. It’s very interesting to me — and, probably no coincidence — that the SMA100 is exactly equal to the purple .236 and the SMA200 to the purple .382. One (if not both) of them is quite likely to get tagged very soon.

If I’m not mistaken, the wave action supports the possibility of this recent bounce from 2039 to 2081 as a 4th wave.

ES continues to suggest 2028.76 — a 27 point drop from current levels. Interestingly, that would put SPX at around 2038 — right where the yellow neckline is and a smidge away from the white .618.

UPDATE: 2:05 PM

As we’ve expected for many moons: no interest rate hike any time soon. And, the FOMC lost patience with the word “patient.” No surprise, but they’ve moved the unemployment goalposts yet again! Where? They’re not saying. But, they’ll let us know when we get there.

SPX reached our initial upside target (2088.15 vs the .618 at 2089.07.)

While, DX reached our initial downside target at the 1.618 of 98.821…

…and, USDJPY has almost reached the 1.272 at 120.40. I’ve sketched in an alternate (to the red) falling channel in white that better reflects the price pattern of recent tops.

CL, by the way, is nearing our upside target at 45.80…

…and, VIX monkey-hammering is in full-swing.I don’t think DX is done dropping. I see it continuing on to our lower goal of backtesting the .500 at 96.17. Though, TPTB might like to see a rebound back out of the larger purple channel it’s been in since last August.

EURUSD has backtested the large falling red channel, and should resume falling here.

While, USDJPY has a bit to go before reaching 120.11 or the white channel bottom — whichever comes first.

Last, TNX had reached and dipped below our downside target at the purple channel midline. If the midline doesn’t hold, we’re likely headed for the .236 channel line.

All things considered, lots of charts that should see SPX plunging. But, algos driven by CL and VIX are pounding it higher.

Yoda’s coming up.

UPDATE: 2:43 PM

SPX surpassed the .618, reaching the rising purple channel and nearing our red .786 target at 2102. Odds are it’ll pause and wait to tag it with the next thrust higher.

UPDATE: 3:06 PM

Spoke too soon. SPX just reached 2102.04 — close enough in my book. Anyone long should consider taking profits here.

UPDATE: 3:22 PM

Algos gone wild! Things are out of control, with CL spiking well above the broken TL from Mar 5…

…and USDJPY pushing lower to tag our alternate white channel bottom……all in an effort to slow down SPX.At this rate, USDJPY’s alternate falling white channel will likely break down and 120.11 or the big rising white channel bottom (meaning a dip below 120.11) will be tested sooner.