Last night, while the S&P e-minis were ramping on the basis of nothing whatsoever, Bank of Japan head Haruhiko Kuroda spoke to the Japanese Parliament:
“The yen is unlikely to weaken further in real effective terms if you think with common sense, given how far it has come,” Kuroda said in parliament Wednesday.
While the FX world argues his intentions (and the uncharacteristic injection of “common sense” into the equation!) USDJPY is tanking — this, after reaching our upside target last Friday.
While he has no intention of paring back QQE at this time, and still insists there are no asset bubbles in Japan, the yen carry trade has been the single biggest driver of stock prices since late 2011 [read more HERE.]
Look for a sharp rally in oil and the euro in order to mitigate the effects. But, if the yen carry trade unwinds, the “markets” are pretty much screwed.
This changes our upside target for this bounce.
continued for members...Instead of 2100 — the top of the falling white channel at the SMA50 — there’s a pretty good chance that SPX will fizzle at the red channel midline here at 2093ish.
An outright moonshot by CL could leave 2100 intact, so use tight stops if you take a shot at the pop and drop. If it does reach 2100, I’d be much more confident in trying a short – particularly if CL retreats below last week’s highs.
CL is not all that far from the white .618 target. And, it remains to be seen whether TPTB will blow the ammunition on ramping SPX a lot higher, or saving it for a rescue operation. My bet is on the latter.
Likewise, TNX is nearing the top of the white channel. 
EURUSD is the one driver that seems to have plenty of upside potential. Of course, it’s swimming upstream given the steady stream of negative news regarding the Greece negotiations.
It goes without saying, but a very positive development (or rumor thereof) is a serious threat to any short position (trade safely, use stops.)
Re the question posed in today’s post’s title, has Kuroda killed off the bull market? At the very least, this is yet another headwind in the post-Big Butterfly Pattern completion world. Many other tools (EUR, VIX, CL, etc.) remain that can be used to lever stocks higher. But, the yen is by far the most important.
What this doesn’t mean is that the BOJ will no longer intervene in stock markets — their own and others. They have more riding on the continuing rally than ever before, and are now piling billions into an already heavily-leveraged position every month.
Our leading scenario is that SPX will fall to that 2039 or even 2014 level in the next week or so. If it plunges any lower, Kuroda won’t be sitting on his hands for very long.
UPDATE: 10:40 AM
SPX is about 2 points away from its SMA50, and ES is only .58 away. I’d be very comfortable with a short position here at 2099 with fairly loose stops — can’t rule out another couple of points into the euro close at 11:30.
USDJPY has held our red channel midline fairly well. And, if it bounces much, SPX could get a good boost. Note that the SMA100 has now reached the key .618 Fib at 120.11, but should start flattening out again. The SMA200 should arrive in late July. In other words, USDJPY will have plenty of potential support for a backtest of 120.11.
The key questions are: (1) how much damage will the drop to 120 do to stocks, and (2) will it be enough to scare the BOJ into expanding QQE again? We should find out soon enough.
UPDATE: 11:20 AM
In a stunning development, the ECB just announced the biggest increase in Greece’s credit line in months — at exactly the same time as SPX reached the SMA50 and the top of the white channel and desperately needed a breakout catalyst.
Yet another example of these “markets” being completely and utterly rigged.
The European Central Bank raised the level of emergency cash available to Greek banks by 2.3 billion euros ($2.6 billion), people familiar with the decision said.
The Governing Council increased the limit on Emergency Liquidity Assistance to 83 billion euros in a telephone conference on Wednesday, the people said, asking not to be named because the discussion was private. That’s the biggest weekly increase since Feb. 18. Governors kept the discounts on the securities pledged as collateral against ELA unchanged, the people said. An ECB spokesman declined to comment.
The ECB is trying to strike a balance between keeping Greek lenders afloat and safeguarding the country’s central bank, which provides the aid, as the government veers toward a debt default. Greek Prime Minister Alexis Tsipras aims to meet German Chancellor Angela Merkel and French President Francois Hollande in Brussels on Wednesday to try to break a deadlock in bailout talks.
ELA “has to be weighed against the risk of overturning the entire Greek financial system,” ECB Executive Board member Yves Mersch said in Frankfurt on Monday. “The risk of saying no would be to plunge a whole financial system into chaos.”
The emergency aid is intended to replace deposit outflows from Greek banks amid uncertainty over the country’s future. International talks this week failed to make progress after Greece submitted a budget-deficit plan that creditors considered unfit for purpose, according to two officials directly involved in the process.
ES, on the other hand, tagged the top of its channel perfectly. So, I’d hang on to a short position here — but, with great caution. Pay attention to the SMA10!
UPDATE: 3:45 PM
SPX remains above the SMA10 and 50. ES hasn’t broken out of its falling channel. USDJPY is still hugging the red channel midline. CL is still off its highs. TNX has nearly reached 2.50. And, EURUSD is showing no signs of believing the Greek rumors.
Traders everywhere are wondering whether this ramp job was just a stop-hunting exercise or whether it’s a real effort to break free from the downtrend. Frankly, I don’t know.
I assume SPX will close at either the SMA10 or SMA50, leaving a possible falling white rally continuation as a possibility. But, it could just as easily be a backtest to higher. In that light, here’s my best guess as to the next upside target. Note: I’ve changed the falling white channel to red and added an expanded channel that would accommodate today’s excess.
If you’re not sure, or don’t have the means to hedge your bets, these are the times it’s best to stand aside and let the dust settle (a lesson learned the hard way.)
GLTA.