As we mentioned yesterday, the key was and remains the USDJPY — which definitely did not play along as was necessary in order for SPX to break through the SMA50. It has since retraced .786 of its rise from 107.997 and is backtesting a broken TL of support. It might be done, or it might be heading lower to flesh out the rising purple channel at the .886 or a double bottom(my preferred view) . The sentiment is quite negative at present, and stocks shouldn’t rally meaningfully without it.
If it can reverse strongly, then our upside targets are good to go. Otherwise, not so much.
UPDATE: 4:30 PM
USDJPY did, indeed, tag the bottom of the purple channel – overshooting a double bottom just a bit.
In so doing, it demonstrated just how difficult it will be for stocks to rally without the yen carry trade’s cooperation. It’s anyone’s guess when/whether USDJPY reaches our 107.50 target, but I think there’s an excellent chance of doing so when we tag SPX 1931 (the bullish case) or our next lower target.
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