We’ll start with a peek at the Big Picture posts for each month so far this year, and wrap up with a look at what to expect going forward.
The Big Picture, January 5, 2016
On Jan 5, I was focused on the fact that USDJPY had dipped below the critical Fib line at 120.11.
Did you feel it? Something big happened yesterday, and it had nothing to do with China, Saudi Arabia, Iran or Donald Trump. Of course, I’m talking about USDJPY, which closed below the key Fib line at 120.11. Is it important? Well, the last time it dipped below this level, stocks were in the midst of a 12.5% plunge.
With SPX at 2020, I identified two important levels of support: 1984 and 1962.
With USDJPY below 120.11, and CL potentially plumbing new depths, 1962 should be doable. After that, we’ll have to see what tricks TPTB can come up with to maintain the purple channel. If they don’t, then we’re obviously in for much more downside than we’ve seen in a long, long time.
The following day, SPX dropped below 1984. The day after that, SPX plunged through 1962 and didn’t stop until it reached 1812 — a 12.9% (versus 12.5%) drop from the end of the year highs.
By Feb 8, I was on crash watch. USDJPY had dropped below the bottom of a huge, 15-month old huge channel, with devastating results for stocks.
Now, as USDJPY drops through the channel bottom again, the “market’s” fate rests on whether or not the central planners will elevate the USDJPY yet again.
SPX, already down nearly 15% from its peak, had completed a huge Head & Shoulders Pattern that threatened to send the index tumbling another 17%.
When the FOMC increased rates two days later, it completed an even more bearish H&S Pattern. On Feb 11[see: USDJPY Finally Relents], I wrote:
USDJPY, along with CL and SPX, should bounce here. If you’re a bull, they must bounce here. The only question: is it too late? [Keep] an eye on CL, USDJPY and NKD for signs of a turn. You’ll know, because all three will be screaming higher.
CL, USDJPY and SPX all reversed sharply that day. CL screamed 50% higher (currently about 100% higher) in about five weeks, producing a 12% rally in SPX and a 17% rally in NKD. It was a massive, highly successful intervention that cemented CL’s role as the primary driver of stock prices. I set a target at 2000 for SPX by Mar 12.
SPX had already reached 2000 by Mar 4, over a week ahead of schedule. The FOMC and BoJ were both due to announce next steps the week of Mar 14.
And, now we face the question of whether SPX will reverse strongly or merely take a breather here. With Kuroda announcing any BoJ policy changes tomorrow and Yellen doing the same on Wednesday, “markets” remain in the hands of the central planners. Wouldn’t it be nice if they’d just publish future stock prices while they’re at it?
Given their success in rallying SPX off its Feb 11 lows, it seemed they were more likely to break out than down. I placed targets of 2050-2065 around Apr 1 and 2087 (later increased to 2098) by Apr 22.
The central banks obliged. SPX reached 2065 by Mar 30 and 2087 by Apr 18. SPX topped out two days later at 2111, 13 points beyond our upside target.
This was another post centered around the coming FOMC and BoJ actions. SPX had managed a rather extreme rising channel that was built entirely on CL and USDJPY intraday rallies. 
But, I had little faith in the BoJ’s ability to keep the USDJPY rising.
That’s probably about it for this leg. If you’re a contrarian and can hedge overnight and don’t believe BoJ has any ammunition left, this would be a great place to short. I still believe the yellow .786 at 2065 is in play…
If there’s a silver lining for bears, it’s that tilting the rising red channel over a bit theoretically presents an opportunity for a backtest of the SMA200 down at 2014 (the red dot above.) Though, it sounds ludicrous to talk of a 73-pt drop in the next day or two.
The following day, the BoJ Screwed the Pooch, and SPX began a 3-week decline to 2025, not quite to the SMA200.
On May 5, I focused on a potential bottom for SPX, identifying a backtest of the broken white channel at 2039 as the most likely scenario.
It could happen any time between now and then, and it could even wait until Friday or Monday. But, the point is to backtest and, thereby, firmly establish support in order to legitimize another push higher.
SPX bottomed at 2039 the following day, then bounced 81 points to 2120 in the lead up to the Brexit vote.
This post was all about the FOMC’s rate decision the following day.
Tomorrow, I expect the Fed to punt. I expect the dollar to try and sell off, but be propped up by central banks when the yen carry trade unwinds a little more. And, I expect oil to rise to compensate. If SPX sells off, and if you’re very careful not to get whipsawed, I’d look for opportunities to short SPX, possibly down to 2017 or even 2000.
The Fed did punt. The dollar did sell off. Oil did rally to compensate. But, SPX’s sell-off was limited to 35 points in the lead up to the Brexit vote on the 23rd. It was then that we got a 122-pt plunge in line with our updated forecast two days before the vote:
Our big red target…would put SPX at 2010-2020. An overshoot to test 2000 is also a good possibility.
It overshot our “overshoot target” just a bit, finally reversing at 1982. The vicious, CL and USDJPY-driven rebound erased the losses in only four sessions, with the 4th (incredibly) being the same day the UK lost its AAA rating.
SPX rebounded absurdly quickly following the Brexit sell-off. As it neared the .886 retracement of its drop, I thought we’d get a decline that would help SPX establish an Inverted H&S Pattern. But, I had my doubts whether it would play out.
…either the white .500 at 2050 or the white .618 at 2036 would make a nice right shoulder for an IH&S Pattern targeting 2235. And, depending on when it occurs, either would leave the yellow channel top unbroken. That’s the bullish scenario.
SPX fell only to 2074 before an astounding 10-day 7.3% rally in USDJPY turned it around. It wasn’t much of an IH&S Pattern, but SPX went on to make new highs anyway — reaching 2193 so far this past week.
In this latest post, I focused in on the various tools which have been used to push stocks higher, and laid out a path for SPX for the next several months.
continued for members… (more…)
