NEW PROMOTION !

Following our recent results, several members (as well as a few lurkers) have inquired about another annual membership promotion.  We got a great response to the last one, so we’ll give it another go. 

From August 25-29, we’re offering Charter Annual Memberships at $950.  It works out to about $2.60/day, less than most of us spend on a cup of coffee.

It’s $550 off a regular annual subscription, and a whopping $1,150 off a monthly subscription at the current rate of $175/month (slated to increase to $200/month at the end of the year.)

Best of all, your rate will never increase for the life of the site for as long as you remain a member.  As one of our long-time members who recently renewed at $600 would tell you, this aspect alone makes this a great offer. 

Note:  If you’re already a monthly/quarterly/semi-annual member, we’ll add your new year to your existing membership.  Your annual price will still be locked for life.

We are also increasing referral incentives during this promotion.  Send a friend our way, and we’ll credit you $250 when they subscribe to an annual membership. 

If you’re a new member, ask a friend to join too and split the savings.  There’s no limit, so if you have at least a few friends you could end up with a free membership.

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If there were any doubts about the relationship between the USDJPY and SPX, yesterday’s price action should have laid them to rest.  As we’ve maintained for the past couple of years, the yen carry trade is the single most powerful influence on stocks’ unending rally and has been since October 2011.

Knock the ever-depreciating yen out of the equation, and — as we saw yesterday — the “markets” start behaving like real markets. They actually begin to reflect the deteriorating fundamentals underpinning over-inflated prices.

We could leave it at that.  But, it’s important to note that yesterday’s mini-flash crash was no less scripted than the past five years’ rally.  The opening plunge took SPX slightly past our initial downside target of 1887.87, and landed NKD and USD JPY just shy of our targets for them.continued for members…

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Better late than never.  Our analog has finally played out, 11 days later than expected.  As we forecast would happen back on March 27 [see: A New Analog], the trillions that have benefited either directly or indirectly from the yen carry trade [explained HERE] are now suffering from the USDJPY’s decline.  From that original post five months ago:

Back to the 2012-13 timeframe:  USDJPY first closed at or below (at) its SMA200 again on Oct 23, 2013 a total of 366 days (≈1 year) from Oct 22, 2012.  The equivalent this time around would be Aug 13, 2015.

The chart below from July 17 [see: Analog Update] shows that original USDJPY target (as well as a potential earlier date): The pair went up to tag our upside target, and has now finally returned to earth — plunging below the SMA200 target as well as the vital .618 Fibonacci level (in yellow below.)

Remember, the yen carry trade depends on a depreciating yen (increasing USDJPY.)   An appreciating yen breaks the cycle, and we get crazy declines in a market that has been propped up so long by the BoJ’s actions.

 

Want higher prices again?  Simple: the BoJ must announce an expansion in QQE (the Fed could also play a role) or at least make sure USDJPY gets a very big bounce right here.  Key levels to expect after the break…

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No, it’s not another apocalyptic warning from the tin foil hat crowd.  It’s just that NKD is closing in on our 19,240 target (between 29,210 and 19,240.)  In my opinion, it’s the most important of the dozens of charts that I follow.  And, as a reminder, it fits in perfectly with our analog as well as our forecast for the Nikkei.

From our last NKD update on Aug 12:

Will the next meltdown will be the charm?  Time to ladle a little QQE on top of the currency manipulation?

When the yen carry trade makes the global financial markets world go ’round, and the central bank that makes the yen carry trade happen is also responsible for propping up the Nikkei 225, and said central bank is facing a colossal collapse of its phony baloney economy if the Nikkei should collapse…

Well, let’s just say that — whether by carrot or by stick — we expect the BoJ to “do the right thing.” They just need the proper motivation — which should be delivered today.

Our next major downside target is likely to be tagged in the opening hour today.

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Yesterday’s downside targets remain in place.

When SPX spiked higher last week, the steep white channel it followed seemed a bit overdone — to the point where it led to a false red channel breakout on Monday.  We were left to wonder whether the Butterfly Pattern set up by the Jul 27 dip would be one more casualty of the PPT.  If so, the analog we’ve been watching for the past 5 months was in serious jeopardy.  Now, it appears those fear may have been misplaced.

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CL just reached our next downside target and should see a substantial bounce here.From our Aug 3 post The Dollar Days of Summer:

Unless it bounces back by the end of the day, CL appears headed for the 1.618 at 40.57.  Interestingly, the timetable seems consistent with our Aug 13 analog target.

Note that this is the 1.618 extension of the bounce from 49.69 in Mar to 64.45 in May.  It also lines up nicely with the white channel .236 line and the falling red channel’s midline. While there is additional downside potential per the falling white channel, this is a solid Crab Pattern [EXPLAINED HERE.] The 1.618 Fibonacci level target usually provides a substantial reversal.

There are several potential upside targets, depending largely on what the Fed minutes have to say.  And, this being the age of head fakes, there is one to consider here.

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A lower than expected inflation print this morning sent notes higher and USDJPY lower.  Within a minute, however, the PPT had swept in and fixed things. The eminis are showing off 8.50, meaning yesterday’s downside target should be tagged in the opening minutes.

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Yesterday was a great reminder that no matter what the economic news, the “market” is no longer in touch with reality.  Between central banks and the HFT/algos suckerfish that feed off them, true price discovery is a thing of the past.

Yesterday’s 24-pt reversal at 2091.51 had nothing to do with the economy, politics, or the Kardashians.  The diminutive trend line we pointed out at 9:40 (below, in yellow) connecting the eminis’ last two lows was all it took.

It’s an apt intro to this morning’s USDJPY chart.  Despite having fallen out of the rapidly rising white channel, it has somehow managed to stay just north of the rising red channel midline.  In fact, every SPX dip we’ve seen over the past two weeks has prompted a quick retreat to the safety of that bullish refuge.

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The New York Fed reported one of the clearest signs yet that not everything is hunky dory in econ land. In a move that matches the early stages of the 2008 plunge, the Empire Fed Economic Activity Index just plunged to -14.92 (expectations +4.50.)  It’s the biggest miss in over 5 years.

Look for USDJPY to sell off just enough to matter — but, not so much that it reflects badly on the Japanese economy, which had its own embarrassing print last night.  GDP declined at an annualized rate of -1.6%, another signal that Abenomics hasn’t worked, isn’t working, and never, ever can work.  To Abe worshipers, of course, this is yet another justification for the coming expansion of QQE.

ES is currently off around 9 points.  Perhaps SPX will get some follow-through to last week’s elusive target: the SMA200, currently at 2076.54.

UPDATE:  9:40 AM

Gotta hand it to the PPT.  What they lack in integrity, they make up in single-minded determination.  There’s another point or two of downside in ES if that little trend line is to hold.  It currently shows two higher highs and two higher lows.  That’s a trend they usually care about protecting.

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The last time the spread between the 10, 20, 50, 100 and 200-day moving averages was this small (22 points) was on January 3, 2008.  It’s the sort of consolidation that almost always precedes a significant move — whether higher or lower.

Back in 2008, it obviously occurred in the early days of the crash.  But, the previous instance in 2004 came at the tail end of an 11-month consolidation that eventually broke out, yielding three more years of the bull market.Coiling doesn’t tell us which way the market will go when it breaks out/down, just that the consolidation’s days are numbered.

Of course, HFT and algorithms have become so effective at manipulating prices these days that we hardly need an excuse for a breakout.  I’m looking at you, CL.

Our targets remain unchanged from yesterday.

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“How dare China devalue its currency!” the ECB and BOJ cried…as they prepared to do more of the same.  Yesterday’s intraday crush were hardly enough to prompt the BOJ — the world’s foremost currency debaser — to expand QQE.  But, the PBOC’s actions sure have them warming up the old printing press, and with a nifty excuse to boot.  We’ve been expecting it.

The ECB, on the other hand?  Well it’s pathetic, really.  First, they threatened QE for years before actually doing it — giving everybody and their mother an opportunity to front-run it.  When they finally announced PSPP on March 9, the EURUSD had been plunging nonstop for a full 10 months.

Left alone, the euro would have reached parity with the USD within 60 days, tops.  After PSPP, it fell for exactly 4 sessions before the ECB pushed the panic button — bailing on the whole exercise.  The reason, of course, was the impact it was having on stocks (the thin purple line below.)

Unfortunately for the ECB, it seems there are still a few investors out there who insist on viewing the markets as rational and fundamentally driven.  They haven’t (yet) been trained in Pavlovian knee-jerk currency debasement buying panics.  They view a weaker euro as tantamount to a weaker European economy that argues for lower stock prices.  Fools.

This is no doubt a severe disappointment to TPTB, who rather hoped that the EURUSD would pick up where the USDJPY left off: the driver of the carry trade that has kept stocks on the rise for the past 4 years.

Instead, the EURUSD has evolved into a third-string bench warmer by which to lever stocks higher when the CL and USDJPY can’t be bothered.  EURUSD is so whipped that it can’t even complete a simple Gartley Pattern; every time it dips below the .618 Fib (1.0845,) stocks go apeshit.

So, the next time Draghi threatens to devalue the euro in response to China’s massive 4% currency move, remind him that he slashed the euro’s buying power by 25% between May 2014 and Mar 2015.  It drove interest rates below zero and inflated PE’s to historic highs, but did nothing to revitalize a failing economy.

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With multiple downside targets to choose from, SPX nailed the deepest natural Fib target (the .886) yesterday, then spent an hour flirting with another leg down to actually complete the H&S Pattern before the algos took over and sent it spiking higher.

The main drivers were the EURUSD and CL, which constructed another flag pattern just like the one on Aug 3-5, the last time it was called upon to prop up stocks.

We remain short from yesterday’s close.  Today’s targets coming up.

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