When USDJPY reached the 120.11 price level that marked a Fibonacci 61.8% of its drop from 147 to 75 that began in 1998, we thought it would signal a decline for stocks.  The BoJ, cagey as ever, kept the pair rising slightly — with occasional bursts higher when needed to support the yen carry trade [what’s this?]But, in the end, there had to be some capitulation after reaching a critical Fib level like that.  This past week, it began in earnest — dropping through the red channel bottom that has provided support since November 2014.

This morning, the plunge finally reached the next most significant support: the .500 Fib and the bottom of the rising purple channel from 2011.  USDJPY, along with WTI and SPX, should bottom here.  If stocks are to avoid a meltdown, they must bottom here.  The only question: is it too late?

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I thought it would take a couple more weeks for the .500 tag.  But, it looks like they’ve decided to rip the band aid off right here and now.

A similar move for CL, which finally reached our 26.22 target late last night.If there is a concerted effort to create a bounce, look for the initial sell-off to reach our 1810 target and stage a comeback.  If it can’t, then the .886 at 1783 is in the cards.Start out short, but start looking for an entry point there — keeping an eye on CL, USDJPY and NKD for signs of a turn.  You’ll know because all three will be screaming higher.

As far as a bounce target, the initial goal would be to close this morning’s gap back at the channel midline around 1850.32.  Maybe Janet can force some dovish language this morning to help it along.  Beyond that, I’d start looking at  the white .618 at 1901.16.

UPDATE:  9:35 AM

SPX just tagged our target.  I’d go long here with tight stops, as we could see another leg down to test 1800-1810.  The key, as mentioned above, is to watch when USDJPY and CL reverse.  This will be my last trade alert for the day.A reminder: I’m out for the next four sessions on a bit of holiday.  I’ll try to post each morning like this, but it depends on scheduling and internet connections.

Good luck to all!

In our Dec 29 update on XLF, we noted that the rising white channel from Aug 24 and an important TL would be tested were the SMA200 to hold.

Note that XLF just tested its 200-day moving average at the top of the falling red channel within the rising white channel which is, itself, rising within a larger falling white channel.

If it breaks out, then the top of the falling white channel  and/or the rising white channel midline is the next overhead resistance to consider.  If it doesn’t break out, then we should see the rising white channel fall and the yellow TL tested again

Not only did the rising white channel break down, but the yellow neckline failed as well.  Given these bearish developments, we’re left to wonder just how much worse things can get.

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In December’s update [Update on Gold: Dec 14, 2015] we discussed the importance of the dollar on gold’s future price moves.

…the weakness in DX since Dec 3 suggests there’s a decent chance of the Fed punting.  If DX plunges further, GC’s 4th bounce could be a doozy: 1150-1180 for starters, and 1286 after that.

The Fed didn’t punt.  They increased rates by 0.25% as expected, and DX rallied for a whole five days.  After peaking on Dec 21, DX has sold off in fits and starts [see: Update on DX Feb 9, 2016.]  GC spiked, reaching 1150 on Feb 4 and 1180 four days later.Today, it backtested the TL at 1180 and is threatening to break higher.  Does it still have legs?

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Futures were unimpressed with Yellen’s prepared remarks this morning, with ES paring 16 points from its overnight highs.   Still, we would all do well to remember that “markets” can do some awfully strange things on Fed testimony days.  Traders won’t like Janet’s lack of capitulation on rate rises.

But, indices often rise on these days as algos go into overdrive to maintain the illusion that all is well and the FOMC doesn’t, as a matter of policy, ever make mistakes.

Case in point: the focus of yesterday’s post — the Nikkei futures — dipped well below the key TL from 2013, but have since rebounded exactly to the neckline.continued for members… (more…)

In our December 1 update on DX [Is DX Really Breaking Out?] I (somewhat cynically) suggested that DX’s rise above a key Fib level was just another scheme to convince investors that the markets were doing just fine.

TPTB have done their best to convince the investment world that higher rates are just around the corner — even as signs of a faltering global economy continue to stack up.  Ramping the dollar up past a natural reversal point is just one more way to support that meme.

As the FOMC dates approach, keep an eye on DX.  A sudden plunge below the .886 would be an excellent way of detecting that investors aren’t buying the story.

Since Dec 1 (the yellow arrow, below) DX has plummeted, forcing USDJPY and stocks lower as “investors” abandoned the yen carry trade.  It got a momentary reprieve (the white arrow) when the FOMC raised rates on Dec 16.  But, since then, it’s been all downhill until today — where it has nearly reached our next downside target.Clearly, the dollar’s performance is critical to stocks.  What next, then, from the world’s reserve currency?

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To continue yesterday’s theme, we focus this morning on the Nikkei futures, which are testing a critical TL – again.  NKD is the first derivative of the BoJ’s manipulation of stocks via yen devaluation and, at times, leads “markets” in carry trade-oriented algorithms.

This support, therefore, is critical not only to NKD, but to SPX and the entire yen carry trade complex. [see: Update on NKD: Feb 9, 2016.]

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In our last update on NKD, we noted the arrival at an important junction of the 50 and 100-day moving averages.  We noted at that time that a drop through those levels would be quite bearish for both NKD and SPX.  NKD did drop through, managed a feeble recovery for two weeks, then really plunged.

This was somewhat surprising, given that the NKD is one of the most heavily manipulated of the major “markets.”  What wasn’t surprising is where it finally found support on Jan 21.  Fun fact?  After a 13.4% bounce that climaxed in a disappointing BoJ QQE experiment, NKD is right back to that bounce spot.  It’s a very important spot.

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One simple chart illustrates the importance of holding 15,820.  Abe, Kuroda et al have a lot riding on this trend line.  They should step in and aggressively buy, today. 

I’ve been beating the yen carry trade drum so long, I can’t remember when it didn’t matter.  Today, as on Jan 20, USDJPY has dropped below the bottom of the red channel.  And, stocks are not amused.  S&P futures were off over 31 points overnight before attempting the latest bounce.ES has dropped 100 points since USDJPY reversed at our upside target on Jan 29 following the BoJ’s ill-fated attempt to turn things around [see: BoJ Underwhelms.]  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.

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QQE didn’t work.  Jawboning didn’t work.  Not even NIRP worked.  When all else fails, the only course left to central planners is direct intervention.  Welcome to direct intervention.

Yesterday, USDJPY tagged the bottom of a channel dating back to Nov 2014  for the second time in two weeks.  Remember, on Jan 20 it actually dipped below the bottom, resulting in SPX briefly dropping below the neckline of a large H&S Pattern targeting 1530.As we’ve discussed many times, this channel can’t fail without the yen carry trade suffering a huge setback and stocks plummeting much lower.

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Yesterday’s meltdown made perfect sense — up to a point.  As USDJPY broke down through support level after support level, it was finally clear it was heading for 116.50 — the bottom of the red channel dating back to Nov 2014.

We’ve written about this channel extensively, as it represents the line in the sand for USDJPY and, more importantly, for global equities [see: The Only Charts That Matter.] Quite simply, a drop through 116.50 means no more upside for stocks.  From Jan 19:Everything was progressing according to plan when TPTB panicked and booted CL out of its thrice-failed trajectory into the stratosphere.  The impact on stocks is perfectly illustrated by NKD, which was only 10 points away from its obvious .618 target when the excitement began.  See if you can spot the moment.CL continues ramping this morning.  How high will they push it?  As high as they need to in order to distract carry trade investors from the USDJPY debacle going on.

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