When markets are no longer free and open, it’s not that difficult for governments to mandate an outcome. The Chinese have graciously (and, clumsily) provided a thrilling front row seat to what’s been happening in a somewhat less blatant fashion in Western markets for nearly seven years.
SPX came within a few points of our 2039.66 target yesterday, despite a 4-hour seventh inning stretch that wasn’t enough to stem the selling pressure. Thank God for the overnight session, right Janet? Our last words from yesterday’s members’ section:
I like the idea of a close at 2039.60. That way, SPX closes below the SMA200, sucking in tons of bears who aren’t aware of the Fib picture just in time to sucker punch them with a big ramp job in the morning.
SPX only reached 2044.66, not 2039.60. But it closed below the SMA200, and no doubt sucker punched more than a few bears.
Overnight, the Nikkei [see yesterday’s update] got fixed…
…the USDJPY [see: yesterday’s update] got fixed…
…and, with a 26-pt ramp job overnight, the S&P 500 might appear to be fixed.
It clearly closed below an important channel bottom yesterday. But, for years now, these things have been easily fixed in low-volume overnight sessions.
SPX has a lot of backtesting to do, offering multiple bounce targets: the broken purple channel bottom from 2009 at 2070, the H&S neckline at 2075, the gray channel midline at 2087…the list goes on. But, will it stay fixed?
continued for members…From my vantage point, it appears the neckline at 2075 will be the first serious resistance. It’s where the SMA10 currently resides, and it’s also the purple .382. Updated charts in a moment.
UPDATE: 9:40 AM
The bigger question I was trying to resolve (when my trading platform froze up on me 10 minutes before the open) was whether this is a corrective bounce or an effective erasure of the technical damage done over the past week, a la mid-October/mid-December/mid-January, etc.
With the Nikkei recovering more than half yesterday’s losses, the Japanese might be feeling less panicked at the moment. But, I believe in the falling wedge I charted yesterday [see: Update on NKD] that indicates a backtest of the 2007 highs (18,870) in late July. That would be a 5% drop from current prices and a full 10% correction from the Jun 24 highs.
Eagle-eyed observers might have noted that USDJPY — which didn’t quite complete its backtest of the .618 at 120.11 yesterday — is only managing to backtest the rising white channel midline this morning. Like SPX and 2039, it leaves open the possibility of another leg down.
In other words, I foresee another leg to this correction that puts the BOJ in the position of needing to prop up their markets with an increase in QQE. It’s what the analog forecasts, and I see no reason to change it at this point.
As to targets…SPX’s rising red channel is officially broken with yesterday’s close beneath it. I propose a new channel, shown below in white, that would work pretty well with what’s come before and offers a new downside target of 2015 in the event that 2039 doesn’t hold.
It represents 1.272 on the red scale, .786 on the purple, and .382 on the white (with Oct 2014’s 1820 as the origin (Point X.) It could happen as soon as Jul 14 (the BOJ has a Monetary Policy Committee meeting scheduled that day) or as late as Jul 30 — which is when NKD’s falling wedge reaches 18,870.
Those of you who are truly, truly anal might remember this chart from April 9.
With SPX up around 2100 and being saved every time it came close to the SMA100, it seemed like a test of the SMA100 would serve as a suitable July 29, 2015 event. Now that SPX has broken and closed below the SMA200, we’ll replace it with something even scarier.
Suppose that white channel bottom we just added to the chart were a H&S neckline? Something like this would probably get Kuroda’s attention, right?
As an aside, I forecast the SMA50 reaching the SMA200 between Jul 29 and Aug 13. Nothing like the threat of a death cross to wake folks up…
UPDATE: 1:23 PM
Updated targets…
UPDATE: 2:15 PM
UPDATE: 2:55 PM