As we all wait to see what magical solution the FOMC can come up with to attack both growing inflation and stagnation, the futures are up modestly on the usual USDJPY/NKD ramp.continued for members… (more…)

With lots of central bank and political turmoil likely ahead, I thought it would be a good idea to review the big picture and identify the most likely outcomes for equities.

We’ll start with the weekly chart for SPX.  This is the pure, unadulterated version — showing just how insanely steep the slope is on the channels — both rising and falling.Note that the rising red channel from 2009 is contained within the .236 – .500 quarter of the rising white channel.  It’s no accident that it started below the .236 line.  And, it’s quite significant that SPX arrived back at the white channel midline and the yellow 1.618 Fib at the same time [see: The Last Big Butterfly.]

The index’s difficulty at busting out of the rising purple channel is evident in the mass of channels, Fib grids and assorted other chart features packed in the most recent peak.

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SPX lost key ground yesterday as it dropped back below the top of the channel dating back to May 2015.  CL and USDJPY did their best to stem the losses, but SPX dropped straight to our downside target, then tagged on a little more for good measure.continued for members… (more…)

If you’re a chartist, there are two distinct markets to deal with.  Both are predictable, but only one is enjoyable.   Friday, when SPX nailed our 2090 downside target, closely following the path we laid hours earlier, was fun.

Then…there’s the market’s evil twin.  It’s driven by algorithms that respond to manipulation in CL and USDJPY prices — a clear case of the tail wagging the dog.  Consider the night of June 5, when CL futures, after having struggled to push past a key Fibonacci level for several weeks, departed from a falling channel to push up and out of a rising channel.Never mind that CL is back below the rising white channel top and is even contemplating reentering the falling purple channel.  Never mind that it burned bears by driving ES 22 points higher over the next three sessions.  And, never mind that it’s back below the white .618 Fib level at 48.63.

The point is, it established new highs for ES and SPX — meaning that all those nifty bearish harmonic patterns that reinforced the bearish chart patterns got busted.  It’s a common occurrence, and one that makes charting a lot tougher than it was a few years ago.

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It looks like we’re going to get that yellow neckline backtest after all.  That poor white dot has been hanging out down there at 2086 for a week, looking less and less likely to ever get tagged.  Now, not so much.continued for members... (more…)

Last month was challenging, to say the least.  After a deep retracement of the drop from 2134 to 1810, SPX began a well-formed, falling channel that lasted from Apr 20 to May 19, at which point SPX had completed two large Head & Shoulders patterns. Beginning on May 24, though, things got very “interesting.”  SPX broke back above the H&S necklines and out of the falling channel on a series of algo-driving rallies in oil futures (CL.)

After three straight days of nearly 1% gap openings (yellow arrows above) with very little retracements, the downtrend was broken.  Ironically, CL advanced very little during this period.  The gains came almost exclusively during market hours, after which CL reset for the following day.Most sessions during the month were gap openings, and most of the rebounds featured meltups — my least favorite “market” to chart or trade.  Nevertheless, we managed to generate decent results for the month at 9.49%.

This was a little lower than earlier in the year when we saw more volatility.   But, Isuspected as much when we entered the dangerous period between the previous all-time high of 2134 and the .886 retracement of the drop from it to 1810.

FWIW, June is shaping up to be every bit as “interesting.”

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Yesterday, CL and USDJPY ran into significant resistance.  But, of course, they weren’t permitted to decline until after the market had closed for the day.  So, we’re left with yet another gap down overnight.

CL is finally backtesting the rising channel it broke out of yesterday.

And, USDJPY very nearly nailed our downside target overnight.

Our downside target for SPX remains unchanged — but, again, we had to hold short overnight to enjoy it.

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As we discussed yesterday, the key to new highs was CL breaking out of the rising channel it’s been in since May 18.  Yesterday, it did.  And, SPX had no difficulty in reaching our next upside target.

As expected, however, USDJPY’s rising channel broke down (a much more legitimate occurrence, I might add.)Can stocks maintain their upward momentum with the pair on the decline?

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Yellen said all the right things yesterday to keep the algos on track, taking out the previous highs and seemingly on track toward new all-time highs.

USDJPY continues to inch higher. But, CL has run into resistance once again — in the same manner that delayed new highs last week.  Which to believe?

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Friday was one of the more interesting days we’ve had for a long time.  It wasn’t that we experienced a snapback rally — we’ve had plenty of those.  Rather, the plunge across the board aptly illustrated l the dilemma the Fed and other central banks face with respect to propping up markets.

With an imminent rate increase likely off the table — at least in June — the US dollar will have a hard time maintaining its strength.  If DX continues falling, then the yen carry trade will continue to falter.  Even though oil futures have become more powerful in driving stock algos, USDJPY still matters (as we saw on Friday.)

They can continue to drive CL higher, but that will simply increase inflationary pressures — which will make the continuation of ZIRP/NIRP that much more alarming.  To be clear, I don’t see any way they get out of this conundrum without stocks taking a hit or consumers taking a hit.  I guess we know which way that usually plays out…

This morning, CL is again demonstrating its ability and willingness to prop up stocks.continued for members… (more…)