SPX has been holding on to the breakout it accomplished on Feb 10, but is having a hard time convincing traders that it belongs here. The price action in ES suggests it isn’t legit… and might not last.
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Posts
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Update on USDJPY: Apr 3, 2017
Although I include USDJPY charts in practically every daily post, it’s been a while since I dedicated an entire post to its latest meanderings. In our November 27, 2016 update, with USDJPY at 112.62, we were looking for it to backtest a recently topped channel midline and continue higher to tag 115.58 or 120.11.
As it turned out, the pair was so focused on assisting SPX to a positive end-of-the-year print that the backtest never really happened. In fact, when the rising purple channel finally broke “down” it resulted in a 5% rally, albeit at a slower pace.
USDJPY pushed past 115, but never could make to to 120.11, falling 1.2% short. I puzzled over its failure to seal the deal, then pretty much forgot about it after USDJPY broke down and started tagging our downside targets.
Now, another 7.2% to the good, I’ve discovered that it actually made perfect sense for USDJPY to reverse where it did. In fact, it appears to offer great clues as to what comes next.
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Charts I’m Watching: Apr 3, 2017
Problems, problems, problems. Oil rebounded nicely though the quarter end, but is creating inflation problems. USDJPY also rallied, but a cheaper yen is not what the Japanese need right now. After 3 tags of a long-term channel way below its averages over the past few years, VIX has dipped below it 18 times in the past 67 sessions. People are starting to talk.
Fed presidents, perennially optimistic about the economy, are talking up the possibility of up to three more rate hikes in 2017 — not exactly good news for a nation already maxed out on its credit cards with equities at all-time highs.
Is there an easy way out?
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Update on AUDUSD: Apr 3, 2017
It’s been quite a while since I took a look at AUDUSD. I remember the last time [see: May 16, 2016 Update] having some difficulty squaring the harmonic picture with the long-term channels. They just didn’t line up in any logical way.
In spending the past few days staring at the charts, it makes a bit more sense now. But, you have to simultaneously look at USDJPY, DX, EURUSD, SPX and CL. Good thing I have a lot of monitors.
At the time of that last post, AUDUSD had just tagged its 200-day moving average — normally a excellent spot for a bounce. But, it didn’t seem quite ready at the time.
It’s reasonable to believe AUDUSD will bounce strongly off its SMA200, but the falling red channel suggests otherwise. Anyone tempted to trade the bounce would do well to wait for it to clear the SMA100 first. If it can’t, there is much more downside potential. That .886 at .6584 is still out there, waiting.
As it turned out, the pair only bounced for one day before dropping through the SMA200 and spending the next two weeks searching for a bottom. It never made it down to .6584, which is actually helpful in constructing our new forecast.
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PCE Tops 2%
It’s been a long time coming. But, the Fed’s favored measure of inflation finally topped its long-stated target of 2%.
Of course, they prefer the “core PCE” which excludes food and energy price changes. Why? It’s lower, and at 1.8%, puts less pressure on them to normalize rates. Either one of them is preferable to the also understated CPI which, at 2.7% YoY last month (before another month of 28% gasoline price increases) comes closer to an accurate measure of inflation.
But, for accuracy, we have to look to alternative measures such as that of economist John Williams, who runs ShadowStats.com. For his primer on why actual inflation is so much greater than the BLS reports, CLICK HERE.
courtesy of ShadowStats.com Nevertheless, futures aren’t loving the news, as it hints at a more hawkish pattern of rate hikes this year. But, with this being the end of the quarter, we’ll have to see what sort of follow through we actually get.
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Happy Brexit Day
Everybody’s wondering whether Brexit will matter. With futures flat and currencies seemingly in the spotlight, we’ll spend the day revisiting our forecast for various currency pairs.
We’ll also take a look at oil and gas. These are the last few days of the month. And, given that gas prices are up about 28% YoY, we’ll examine the implications for March CPI due to be released in two weeks time.
First, a quick look at the markets, which are seemingly back under central banker control. In fact, there’s a VIX plunge waiting in the wings (the red arrow) for any bears who have thoughts to the contrary.
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Gold: Following the Yellow Brick Road
I’m not a gold bug. I’ve always thought the price is pretty heavily manipulated (long before it hit the headlines) and I guess I’ve avoided it on principle. Looking back at my forecasts over the past year or so, that was probably a mistake.
Since our December 14, 2015 forecast, GC has gained about 19% — not shabby. However, if one heeded the forecasts offered with each subsequent update, the net return would have been over 80%.
I’ve said many times, lately, that forecasting stocks has become a lot tougher than forecasting the various drivers of stock prices. In the case of gold, it is obviously affected by the value of the US dollar, which is an important component of USDJPY — a key driver of equity algos.
Thus, GC — like USDJPY, WTI and VIX — is one of those things that’s been relatively easy to forecast even though I’ve devoted only the occasional hour or two to its study. Before we touch on today’s forecast, let’s take a look at the past year’s periodic forecasts.
The numbers in the above chart correspond to the posts below.- Dec 14, 2015 (GC: 1060):
“If DX plunges further, as I expect it will, GC’s 4th bounce could be a doozy: 1150-1180 for starters, and 1286 after that.” GC reached 1180 by Feb 8, topped out at 1287.80 on Mar 11.
- Mar 4, 2016 (GC: 1280):
“I’d be very cautious in chasing GC at this point…acts like it’s reversing between here and 1286…take the gains…it could easily backtest the .618 at 1207.60.” GC reached 1286 the next week, then reversed to backtest 1206. - April 8, 2016 (GC: 1240):
“If [gold] breaks above the purple midline [at 1270] then 1379-1380 is the next logical target…” Gold reached 1377.50 three months later. - July 7, 2016 (GC: 1361):
“Our target range from April 8 was 1379-1380. Yesterday’s 1377.50 was probably close enough. If it can’t make new highs today, the next stop is the neckline at 1307..” GC, which peaked at 1377.50 on Jul 6, dropped 5% to 1310 over the next 2 weeks.
- Aug 26, 2016 (GC: 1324):
“…[there’s a] huge IH&S Pattern, the neckline of which is the former high at 1307ish. If TPTB are serious about discrediting GC anytime soon it’ll involve getting it back below that [1307] support.” GC tumbled to 1307, testing it three times before breaking down to 1243 on Oct 7. - Oct 7, 2016 (GC: 1254): “…GC tagged its SMA200 and the bottom of a pretty good looking channel earlier — usually good for a bounce.” GC bottomed the next day at 1243, bounced for a month, reached 1339 on Nov 9.
- Nov 14, 2016 (GC: 1227): …GC’s channel finally broke down two days ago and has potential to 1083 — a 12% drop from here. What better way to finish the year out? GC plunged 103 (8.4%) over the next month.
- Dec 5, 2016 (GC: 1175): If the .618 [1172.40] breaks down, then the next support isn’t until the red TL at 1130, followed by the .886 at 1083.50… GC reached 1130 on Dec 15.
- Dec 15, 2016 (GC: 1129): “GC is currently testing an important internal TL of support… a potentially important test…that could produce a bounce to the purple midline [at 1230] or the SMA200 — currently at 1278.” GC reached the SMA200 at 1264.60 on Feb 27.
After tagging its 200-day average in February, gold tumbled about 67, back below a key channel midline. But, it is right back in the swing of things, having nearly reached the SMA200 a second time just yesterday.
With all the discussion about what the Fed will or won’t do for the rest of the year, what’s next?
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- Dec 14, 2015 (GC: 1060):
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Betwixt and Between
SPX and ES managed to hold key trend lines and channels yesterday, bouncing from just short of our downside targets to exactly where we expected. All it took was an 18.3% hammering of VIX — no problem for the Masters of the Universe (real subtle, guys!)
But, there was no breakout. There wasn’t even an overnight ramp job.
This somewhat validates our theory about the oil and USDJPY two-step, meaning we should be looking for a big, sudden move in the currency markets as soon as today.
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Update on DX: Mar 27, 2017
Last week I alerted members that the dollar was approaching potentially strong support at 98.65 – 99. This morning, it reached the upper end of that range.
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Reproach and Retreat
The first big Republican victory — the repeal and replace of the ACA — has morphed into reproach and retreat. The net impact: what does this failure portend for the rest of the Trump agenda and, thus, the Trump Rally?Regular readers know that I’ve looked askance at this rally from the start [see: Why the “Trump Rally” is a Fraud.] It was born of a sharp reversal in CL, USDJPY and VIX — the key algo drivers. Momentum traders jumped on board as it rose. And, somewhere along the way, mainstream investors convinced themselves that the new and improved outlook justified an 18% rally.
But, live by the algo, die by the algo. The yen had to appreciate to compensate for higher oil prices. Higher US and euroland inflation necessitated a drop in oil and gas. And, front-running the Fed’s tepid response to spiking inflation was widespread. With the Trump Rally narrative in doubt, there were simply too many plates to keep spinning.
Futures are off 22.50 at the moment, leaving us some clues as to what to expect for SPX. But, the more important side of the equation is where do WTI and the USDJPY dip to?
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