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China Joins the Party

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In a move that surprised practically no one, China decided to join the currency debasement party in order to stimulate its slumping economy.  E-minis are currently off 18 points, but the interesting action, of course, is in the currencies.

The Yuan made a big move, to be sure, but it affected different pairs to different extents.  Whereas the move versus the dollar was huge…

Screen Shot 2015-08-11 at 6.23.58 AM …it barely registered on the yen.  The reason, of course, is that the Japanese cannot afford to let anyone – especially China – beat them in the race to the bottom.  This actually tracks from a fundamental standpoint, as China is Japan’s biggest import partner.

Screen Shot 2015-08-11 at 6.24.51 AMThe USDJPY, predictably, is up.

continued for members…

2015-08-11-USDJPY 60 0635Today’s targets for SPX include the white TL from the Jul 7 bottom and the red channel midline at the SMA200 (2074.13.)2015-08-11-SPX daily 0608Note that at current levels, ES has set up a nice-looking smaller IH&S (in red) to complement SPX’s larger one (in purple.)2015-08-11-ES 5 0608I suppose the best target for SPX would be to close yesterday’s gap (2082.61) and leave the new IH&S intact.

UPDATE:  6:35 AM

CL just tagged the purple channel bottom, and TNX has closed the lower gap we discussed last Friday.  I think SPX is getting very close to turning, if it hasn’t already.  I’d go long here at 2088, though we’re probably several points early.

2015-08-11-SPX daily 0635Note the purple channel bottom tag.  The red channel top tag overnight did little to stem the overnight losses.  CL is even back inside the falling white channel.  So, the bounce could be premature, in which case we’d switch back to the short side.

2015-08-11-CL 60 0635 2015-08-11-TNX 60 0635UPDATE:  9:51 AM

CL and USDJPY are slipping from their initial “save the world” reaction, so I’d switch back to the short side here at 1089.5 with our initial targets still in place.

2015-08-11-SPX daily 0651CL has completely lost touch with reality.  But, the red midline is one obvious downside target, with the bigger target the bottom of the red channel where it intersects with the 1.618 at 40.57.

2015-08-11-CL 60 0651UPDATE: 11:30 AM

SPX has come within a couple of points of our downside target — driven largely by a still weak CL and, interestingly, TNX.  2015-08-11 SPX 60 0830Remember last week when lower 10-yr yields drove Monday’s dip to backtest the red midline.  We noted at the time that TNX came up just short of the .886 Fib: 21.39 vs 21.37.  Today, it reached the actual .886 — even overshot it a bit.

2015-08-11 TNX 60 0830Given BOJ’s apparent lack of interest in feeding the bears (NKD is off 1.67%, horrors!) it’ll apparently be up to TNX and VIX…2015-08-11 VIX 60 0830…to get that gap closed or SMA200 tagged — whichever they have in mind.

UPDATE:  12:00 PM

ES has probably given all the help it’s willing to at this point.  2015-08-11 ES 60 0859

SPX has closed the daily chart gap, though there’s still a little left on the 60-min.  I’d play the bounce and go long here at 2079.65, with the understanding that there could be another leg down to the SMA200 later in the day.

2015-08-11 SPX 60 0859USDJPY says enough is enough…

2015-08-11 USDJPY 60 0919For a little perspective, take a look at the daily chart.  USDJPY has retraced nearly 88.6% (125.199 vs 125.229) of its reaction upon completing the Crab Pattern at 125.72 back on June 5.  I’ve changed the color of this pattern from gray to yellow in the chart below to better highlight it.

2015-08-11 USDJPY daily 0952

UPDATE:  12:55 PM

With USDJPY backing off the .886 and TNX failing to retake the .886, it looks like SPX will go ahead and seek that gap close now. Switching back to the short side here at 2080.50.  FWIW, 1:30-1:34 PM ET  is a common low point in the day.

2015-08-11 SPX 60 0952UPDATE:  1:07 PM

SPX just closed the gap.  Will hold a little longer and see if we can’t bag the SMA200 (2074.13), too.  Just need a little help from USDJPY and/or CL. 2015-08-11 SPX 60 1007VIX also reached the SMA200 on the 60-min chart.  It was a turning point on Friday.2015-08-11 VIX 60 1007UPDATE:  3:12 PM

Either the bottom is in, or this is a pretty good head fake.  Ditching the short position for a long here at 2082.19.  I’d keep a stop at 2082 in case it’s a head fake — which I believe it probably is.

2015-08-11 SPX 5 1212UPDATE:  3:20 PM

Quick trip up to the white channel midline, only to end up back at the .618.  Expecting to get stopped out back to short any second…2015-08-11 SPX 5 1220

USDJPY is being quite stingy with help in tagging the SMA200 — which probably means a late in the session melt-down to suck in some bears ahead of a ramp job.2015-08-11 USDJPY 5 1220If I’m wrong, USDJPY will probably head for the .886 into the close, meaning SPX heads up to the intersection of the 5-min SMA100/200 at 2088ish.  If USDJPY would break below the red TL, I’d be very comfortable shorting SPX into the close.

UPDATE:  3:42 PM

USDJPY just dipped below the TL, so I’ll switch back to short here at 2085 on SPX.  2015-08-11 SPX 5 1242It would help on the downside if USDJPY could also dip below the purple midline.

2015-08-11 JPY 5 1242UPDATE:  3:55 PM

Given that it’s closing on a “positive” note, there’s probably more downside to come in the morning — possibly tagging the SMA200.  Usual caveats apply — don’t hold short overnight unless you can hedge.

USDJPY is flashing rebound, which – again – is probably a headfake.  Once it actually tags the .886, then the Fib fakeout is over.  They can go higher or lower, but there’s no more threatening it.

2015-08-11 JPY 5 1253

 

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