Better late than never.  Our analog has finally played out, 11 days later than expected.  As we forecast would happen back on March 27 [see: A New Analog], the trillions that have benefited either directly or indirectly from the yen carry trade [explained HERE] are now suffering from the USDJPY’s decline.  From that original post five months ago:

Back to the 2012-13 timeframe:  USDJPY first closed at or below (at) its SMA200 again on Oct 23, 2013 a total of 366 days (≈1 year) from Oct 22, 2012.  The equivalent this time around would be Aug 13, 2015.

The chart below from July 17 [see: Analog Update] shows that original USDJPY target (as well as a potential earlier date): The pair went up to tag our upside target, and has now finally returned to earth — plunging below the SMA200 target as well as the vital .618 Fibonacci level (in yellow below.)

Remember, the yen carry trade depends on a depreciating yen (increasing USDJPY.)   An appreciating yen breaks the cycle, and we get crazy declines in a market that has been propped up so long by the BoJ’s actions.

Want higher prices again?  Simple: the BoJ must announce an expansion in QQE (the Fed could also play a role) or at least make sure USDJPY gets a very big bounce right here.  Key levels to expect after the break…

continued for members…

I don’t believe new lows in USDJPY are necessary in order to achieve SPX’s downside targets.  And, NKD is sitting just above our downside targets.

As we discussed last week, 1887 in SPX looks like the best target from a Fib standpoint.  But, the futures indicate it could be exceeded.The key NKD level is 17000.  Remember, the BoJ is naturally more focused on their own markets.

Other key charts include the 10-yr notes, which are very close to our 129’045 target……and CL, which is testing a channel bottom and should bounce here.  What better way to gin up some inflation than to ramp oil higher?

UPDATE:  9:32 AM

NKD getting close…VIX almost to the .886, plenty close enough to the purple .786 line.Of course, the plunge won’t truly be over until a central bank — preferably the BoJ — steps forward and extends/expands some free money.

Abe is in Parliament right now.  From Reuters 10 minutes ago…

So, they’re going to blame the inability to hit 2% inflation on falling oil prices, and stay with the “we need higher inflation, therefore more QQE” meme.  It’s an oldie, but a goodie.

What’s interesting is that some reads of the Abe statements indicate the big guy might be ready to change horses.  In the article below, Abe sympathizes with Kuroda, says he’s doing a good job — but, in a manner that calls to mind G.W. Bush’s famous “Brownie, you’re doing a heck of a job.”

UPDATE:  11:40 AM

Neither ES nor SPX quite reached their .886 Fib retracements from October.  ES reached 1831 vs 1827.67, and SPX reached 1867.01 vs 1856.46.  Because the reversal came so close to ES’ .886, we must remain open to the possibility of a push lower.

Likewise, NKD came close, but didn’t quite tag the intersection of channel lines and important Fibs at 16994-17022.

I haven’t seen or heard anything specific on more QQE yet.

UPDATE:  12:00 PM

UPDATE:  12:28 PM

Stops are proving their worth today.  SPX appears headed toward this morning’s gap, which would close at 1971.71, with the red channel backtest at 1993.UPDATE:  3:02 PM

The bounce failed at 1954, and SPX is concentrating on the white .886 at 1856.46 again.  Watch out, however, for a potential B wave that merely retraces .786 (1885.65) or .886 (1876.94) of this morning’s bounce.  The key price level is the .786 at 1887.87.  If it holds, time to close the short.UPDATE:  3:56 PM

Last few minutes of the session, and there isn’t any more clarity about another leg down to 1856.  If you can hedge or watch closely overnight, I’d stay short — only because of the additional downside to our targets and the VIX, USDJPY and NKD charts.