Having utterly failed to arrest Japan’s economic malaise since its inception, will QQE suit up once again now that Japan has officially entered its fifth recession of the past six years?  From zerohedge.com:

Don’t look for Abe or Kuroda to fall on their swords.  Because, while debasing the yen has obviously done nothing to fix the Japanese economy, it has done wonders for the Nikkei.And, if that story sounds familiar, turn to this morning’s Empire State Manufacturing report from the NY Fed.  The latest miss (-10.74 vs expected -6.34) is the fourth monthly contraction in a row (most since the financial crisis) and the 9th of the past 10 months.

Makes it tough to believe the FOMC will really raise rates next month, no?  We’ll see if the “market” views it this way, taking the bad news as good from a Fed intervention standpoint…

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Not since Moe, Larry and Curly Joe struck oil has the industry had such trouble balancing supply and demand. While there’s plenty of bickering about the fundamentals, I’ve found that CL’s price action is an excellent gauge of what to expect.

It’s been fairly easy to forecast.  We called the March bottom very accurately [see: Mar 17 Update on Oil], and were only a few days early in August [see: Oil Bottoms Out.]

As we’ve discussed many times, the supply/demand picture is no longer the most important factor in CL’s pricing. It’s now a part of the central planners’ toolkit of essential levers.

They’ll force prices lower if Japan devalues the yen, thus facilitating the yen carry trade. Otherwise, CL always seems to find a reason to bounce. It’s very much a “carrot or stick” proposition.

From An Offer Japan Can’t Refuse back in September:

One of my more outrageous theories advanced back in March [see: Those Wacky Central Bankers] suggests that oil’s price crash over the past year was engineered in order to induce Japan to further weaken the yen.

The relationship is pretty easy to see, especially at important inflection points such as Aug 2014.In case you hadn’t noticed, it’s happening again. USDJPY bounced 6.4% off Aug 24’s lows, and is back near its pre-correction highs. CL bounced too, but has given up most of those gains — plunging 21% since its Oct highs.

It’s where it plunged to that has me intrigued.

Remember the channel bottom that CL dipped below on Aug 24? Looked really touch and go? Like it might fall off the edge of the earth? It’s baaaack.

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Channel bottoms don’t always mean a bounce. But, when something doesn’t bounce at a channel bottom, it usually plunges sharply. Failure at potential support makes folks nervous, and nervous folks sell.

In this case, there’s even another channel that should provide support. And, if that support doesn’t materialize, the .886 Fib should make for a good backstop.Will we get a big bounce here? That depends mostly on whether or not USDJPY breaks out. Last week was a great start, spiking higher through the SMA100 on the latest ECB brilliance.

Given how far CL has fallen in the past week, central planners have probably already secured a pledge from the BoJ to break USDJPY out of its week-old slump.  If so, stocks can get on with their rebound.If CL drops below all this support, it has one last chance at 37.07.  If it drops through 37.07, then it’s a long way down to 26.22.  And, it would mean the BoJ has pledged to ramp USDJPY to a new level altogether — one geared to produce new highs in the near future.

Stay tuned.

 

 

Happy Friday the 13th.  The stage is set for our next downside target to be reached.

CL is off substantially again this morning, with the white channel bottom within striking distance and the .786 or .886 good alternatives. USDJPY has settled lower, but maintaining the upward trend in the rising purple channel. continued for members… (more…)

It’s been almost six months since we called the top on SPX.  On May 20, I noted that SPX was nearing a key Fibonacci level that should produce a reversal [see: The Last Big Butterfly.]  I laid out some potential targets that might be tagged in an unrigged market:

Is there any chance in hell that the world’s central banks and their Wall Street (and, Chicago) accomplices would permit the enormous sell-off that a Butterfly Pattern would normally produce?  A typical response would be to the .886 at 1472, .786 at 1381 or .618 at 1228.  Even the closest Fib level is 1823 — a 14.7% drop.

SPX didn’t reach 1823.  It only dropped to 1867 — a still tasty 12.5% plunge.  While TPTB averted another backtest of the 1.272 Fib (it already did it in Oct 14), they left what feels like unfinished business.

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SPX should finally hit our 2063.95 target from Nov 3 [see: Beware the Bat] in the opening few minutes  (click on the great Etta James to the left for musical accompaniment.)

The chart back then showed a relatively quick backtest that would take a few days at the most.  Somehow, that few days got stretched into 9, testing our patience and fleecing traders trained to always buy the dip.

It’s not that TPTB didn’t want to allow a backtest.  They just didn’t want the average Joe to participate.  Hence, our warning for the past several days that it was likely to occur on a gap down in the morning.

First, a quick look at why it’s happening this morning, followed by a review of what’s likely to happen next.

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Yet another day of nonsensical SPX propping yesterday.  Five sessions after SPX completed a Bat Pattern at the .886 Fib retracement of the drop from 2134 to 1867, it finally managed to tag the .786 Fib.  Two days later, it can’t even manage another few points to backtest the SMA200.

USDJPY remains elevated, jealously guarding the points it gained in last Friday’s post-NFP sprint.  While it is cautiously returning to earth, it’s doing so after hours, when ES is easily propped up.

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Yesterday, SPX reached our initial downside target with ease, then struggled to reach our second – coming within 5 points before the algos kicked in.

While there’s every chance in the world that this decline will be limited to a modest backtest, it’s worth focusing on the 10-yr rates chart (TNX) and what happened the last time it reversed off a trend line that dates back to 2007.

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Note: Today is the last day of our membership promotion.  Charter annual memberships are $550 off the regular annual rate and $1,200 off a year at the monthly rate.  Remember, if you’ve signed up in the last 30 days, you may apply your payment toward the new year.  Details and sign up at: SIGN UP NOW!

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With the massive NFP beat on Friday, bears thought they just might have a fighting chance.  The odds of a rate rise in December have clearly risen.

And, sure enough, there was a 22-pt drop off the pre-announcement highs in the futures.  But, the dollar — which had already broken out of its seven month consolidation — was further emboldened by the prospect of a massive 1/4% boost in short rates. And, TPTB were quick to seize on the USDJPY strength (+1.15%) it produced.  What happened after that was a testament to the degree of control they still exert over currency markets and, hence, the equity markets. The net result was a drop in SPX that was couldn’t even reach the next lower Fib level.  But, that was Friday.  Today’s another story.

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Like it or not, central bankers just engineered a breakout in the USD.  Now, all they have to do is convince investors that this is a good thing.Of course, by “good,” we’re not talking about macroeconomic impact on inflation, trade, or employment.  Those things might matter to the few portfolio managers still focused on fundamentally-based investing — but, not to the folks actually driving Mr Market.

We’re talking about the yen carry trade, which drives trillions in investments worldwide and has been almost solely responsible for the unending rally since 2011.

The yen carry trade thrives on dollar strength and yen weakness.  So, it absolutely loves the idea of a dollar/USDJPY breakout — as long as it lasts.continued for members… (more…)

First, a quick update on yesterday’s CL and USDJPY charts:

CL reneged on the IH&S that helped ES/SPX top their .886 Fib levels, and is further abandoning the TL that limited yesterday’s downside.Maybe it’s because of where USDJPY currently trades.  It’s menacing enough, all by itself.

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