After officially entering the Yemen conflict, Saudi Arabia has blockaded of the Red Sea Strait. Oil has officially left the falling white channel, but reversed at the .786 Fib……and DX’s response has been just as muted — so far.  But, it’s going to have to rise appreciably if they’re going to stuff oil back in the box where they need it. — which, for now, means in a range between 44.45 and 52.48.

The falling white channel .786 line should do, with the channel top (where it intersects with the rising purple channel .786 at 98.5ish?) available if needed.  Remember, the purple channel is the more dominant, dating back to Aug 2014 when USDJPY broke out.

The problem TPTB face is that they’ve used algos that incorporate the occasional bounces in oil to drive stocks higher for the past several months. Witness the many instances we’ve documented where prices shot up during the session, only to be reset overnight.

We’ve discussed the need to delink SPX and oil now that it’s in a desirable sweet spot.  The Middle East situation might just do the trick, since higher oil prices will now be linked to a increased risk.

For a discussion of the rationale behind all of this, see: Those Wacky Central Bankers.  Just slip on a tin foil hat, first.  And, remember, just because they’re manipulating the “markets,” it doesn’t mean you’re not paranoid.

The S&P futures were off as many as 23 points overnight, but are currently back to the SMA100 at 2044.

Yesterday’s action saw SPX plunge through each of our downside targets in fairly quick succession, finally landing precisely at the one that left traders in the biggest quandary.  From yesterday’s members section:

The most irritating target would be the TL off the Oct 15 low — currently around 2060.3.  It also stopped the Feb 2 and Mar 13 declines, and would be a stick in the eye to everyone who considered Bullard’s October 16 stick save dirty pool.

Yesterday’s downside targets remain in place.

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Fascinating interplay between the yen, the euro and the dollar today.  Biggest problem for bulls continues to be the broken rising white channel.

Look for any more downside to be relegated as much as possible to the after-hours to offset the likely overnight decline in CL, which is ramping like crazy to try and stop SPX’s plunge.  There’s a nice backtest available at the close where the red midline crosses the white channel bottom at 119.80.

They had to run CL up through two channel tops — one of them from Jun 2014!  Same thing happened on Mar 5, and they had to ramp USDJPY back above the .618 at 120.11 to cover CL’s retreat.

SPX tagged our downside target [see: Mar 20 Update] of 2089 early this morning.  A meager bounce saw it slide through support at the SMA50 to within a point of our final target of the day: 2066-2068.The EURUSD is lending a hand as best it can, but badly needs a breather.

Breaking the TL from Mar 12 definitely did some damage.  What does it do to our forecast?

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Since we spend so much time looking at the yen and the euro compared to the US dollar, it made sense to compare the two to one another.  The yen has been the primary driver of rising stock prices for several years, now.

Will the ECB’s much heralded entry of the euro into currencies’ “race to the bottom” change the equation?

As seen above, the pair has bounced back and forth in a very broad channel ever since the euro’s inception.  In the early years of 95-98, the euro gained at the yen’s expense as SPX enjoyed an extended bull market.

When EURJPY topped out in 1998, SPX fell almost 20% over the next month, but recovered to make new highs 18 months later in Mar 2000.  This began a period of inverse correlation that would last until Oct 2002, when SPX finally hit bottom after falling nearly 50%.

Once it did, a strong positive correlation resumed until EURJPY peaked again in 2007.  This time, stocks peaked at about the same time.  As SPX neared a 300-pt decline, EURJPY shot up to a slightly higher level before joining in the crash.

EURJPY bottomed out in Jan 2009, SPX in March. The correlation stayed fairly positive except that EURJPY’s two waves lower were matched by much smaller corrections in SPX — which was beginning to feel the full effects of the Fed’s QE.

When SPX (along with USDJPY) bottomed out in Oct 2011, it touched off a run of extremely strong positive correlation that lasted until December 2013.  EURJPY topped out and began a steady decline that lasted into September, while SPX ratcheted ever higher.

Finally, on Sept 19, EURJPY reversed at the top of a triangle (below, in yellow) that had been forming since Dec 2013.  Only, this time, it didn’t stop at 136 as it had several times before.

That momentary lapse, that brief bout of yen strengthening, was enough to send SPX 200 points lower by Oct 15 — a collapse that was only arrested by the announcement on Oct 31 that the Bank of Japan would extend and greatly expand its QQE and triple its stock buying.

EURJPY shot up almost 12% over the next seven weeks — which was all stocks needed in order to rally into the end of the year.  Since mid-December, however, it’s been a different story.

The ECB officially got into the currency debasement game. A weaker euro sent EURJPY tumbling by nearly 15% by Mar 13, following the steep falling red channel shown in detail below.EURJPY’s four bounces have produced bounces in SPX of 120, 71, 124 and 69 points.  But, one gets the feeling that the rubber band is becoming rather stretched.  In the past, SPX has eventually “caught down” with a plunging EURJPY.  That falling red channel portends more of the same.

The USDJPY has already broken down from a very well-defined channel that dates back to Jan 13 — signalling a strengthening yen.And, though EURUSD experienced a very fortuitous bounce after having fallen through the bottom of two channels of its own, the ECB is working to cheapen the common currency even further.  The next major support is almost 10% lower.

In other words, there’s little reason to think that EURJPY will do anything other than continue its freefall in the falling red channel.  How much longer can the divergence between it and SPX go on?  Time will tell whether we’re in a 2000 or 2007-style bubble.  Though, currency manipulation isn’t the only tool at central bankers’ disposal.The rising red channel midline is still below at around 125.47.  And, just underneath that, the white .500 Fib line at 121.93 might offer some support.

Below that, however, the next major support isn’t until the white Fib crosses the falling purple channel midline and rising red channel line at around 115.36 in late April/early May.  And, the biggest target is down around 106 later this summer.

It should be an interesting summer.

 

 

 

 

 

 

 

 

 

continuing…

Note:  RUT and COMP charts were updated last night.  Check them out.

*  *  *  *  *

Since reaching  our Mar 17 upside target and generating a sell signal last Friday, SPX had gone virtually nowhere  — until the last few minutes of yesterday’s session, when it suddenly gave up 8 points or so.It was a tug of war all day, with rising oil and EURUSD providing cover for a falling USDJPY.There are three troubling developments for bulls this morning.  As the chart above shows, USDJPY’s rising white channel has broken down — at least for the moment.  And, CL has reached the top of the falling white channel.

Last, DX is bouncing at our downside target.

The implications of all the above are bearish, and we should see some follow-through in SPX today.

There are several potential targets. continued for members… (more…)

When we last reviewed COMP on Oct 14, 2014, it had flouted so many chart patterns and Fibonacci retracements that the chart was as clear as mud.  Note from the comments that we had already taken to putting quotation marks around the word “market” — a very good indication of our frame of mind at the time.

The close-up reveals the Sep highs didn’t quite reach the .886, and the latest low didn’t quite reach the .618.  Either could still be in play, depending on the overall “market’s” intentions.

This was nothing new.  The long-term chart contains many such breaks with charting convention.  Note the general absence of reversals at major Fib levels.

The last time it had done anything very conventional, it bounced at the SMA200 on Apr 15, 2014 — which happened to line up nicely with a trend line from the two previous lows.

So, we paid attention when six months later — on Oct 13 — it closed beneath the SMA200.  We really sat up and paid attention when it continued to plunge below the SMA200 and the trend line from 2009.

We weren’t the only ones.  Fed president Jim Bullard got a frantic call from someone who informed him of the bearish developments and suggested he get himself on TV pronto — which he did.

At 1:30 into the clip above, he suggests the Fed might pause the taper if the “inflation expectations” — wink, wink — didn’t remain near their target.  That’s all the “market” needed to hear.

Three sessions later, the plunge below the 5+ year TL was forgotten and COMP shot above the .886 to new highs.

Since then, it has constructed a TL connecting four distinct highs that reaches the former all-time high around mid-April.  It has also tested the SMA100 four times, holding even when it closed below it.

The rising wedge is fairly well-formed.  But, we wouldn’t bet on it playing out.  Consider that the last two highs have slightly exceeded a TL (solid red, above) connecting the much more important highs of 2004 and 2007.

Of all the charts out there, COMP has been one of the most dysfunctional.  This might or might not change anytime soon.  It will depend completely on the extent to which Bullard and his central banking homies leave the “markets” alone — if ever.

In our last major update on RUT, we noted that a rising channel from  had broken down.  But, we also noted, RUT had since bottomed out and was aggressively backtesting — climbing the underside of the broken channel.

Now, backtests can and — in this rigged market — often do go on to exceed previous highs.  So, the current one could easily climb right on up the belly of the broken wedge to 1213 or higher.

In fact, that’s exactly what happened — thanks to the Bank of Japan.

First, a little background.

RUT’s drop through major support had drawn attention.  Even permabulls had noticed the glaring divergence between RUT and SPX.  And, they were starting to talk.

continued for members… (more…)

SPX reached our secondary target at 2110.48 Friday — two sessions ahead of schedule.  Per our Mar 17 forecast (members’ section):

Assuming SPX can get past the SMA20, the midline also intersects with the broken purple channel bottom for a backtest Thursday morning at the red .786 (or next Tuesday the 24th at the .886 at 2110.48.)

We recommended taking profits at this level Friday.  In addition to completing the small Bat Pattern, SPX has backtested the broken purple channel.  Of course, bulls would love nothing more than to barge right back into it as has been done with many V-shaped “recoveries” over the past year or two.

This morning, USDJPY is nearing the white channel bottom with support around 119.61 (and secondary support at 119.44)……while CL was eased down overnight to its trend line support.The damage done to DX isn’t dinging stocks…

…thanks to EURUSD’s continuing bounce.

Note that EURUSD is nearing completion of a Gartley Pattern at 1.0949.  Regardless of whether it reverses, EURUSD’s strength since bottoming at 1.0462 on the 17th has to leave ECB easing fans wondering — if not worrying.

DAX’s spectacular 28% run (from Jan 5) leveled off on Mar 16, when EURUSD’s slide was interrupted in order to save SPX from declining any further.  If the euro resumes falling, however, that task will revert to USDJPY and CL — both of which have managed to boost SPX during the day (sometimes taking turns) while resetting overnight.

Thus, neither is really going anywhere.  But, the benefit to SPX is nevertheless positive.  It begs the question: “how long can this go on?”  The answer, as is often the case, lies in the past.

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Stocks topped out just north of our 2102.49 target on Wednesday [see: Mar 17 CIW] and spent most of Thursday backfilling and testing the SMA20.Since USDJPY is back above the critical .618 Fib at 120.11, we’re meant to believe it is breaking out yet again (despite Paul Tudor Jones’ warning.)  But, as we point out in yesterday’s Update on USDJPY, this is the fifth time above 120.11 since December.

Four of the previous times sent stocks reeling when USDJPY wasn’t able to break out:

1.  a 107-pt drop from 2079 to 1972 in seven sessions.
2.  fell 101 points in five sessions (and, marginally lower over the next two weeks)
3.  gained 52-pts (on oil’s bounce) but tumbled as USDJPY failed a second try
4.  a 30-pt slide on USDJPY’s pullback from the Fib and the red, dashed TL
5.  a 64-pt drop (when oil’s bounce failed)

Wednesday’s CL, USDJPY and DX takedown was discussed extensively in Algos Gone Wild.  It analyzes beat for beat the means by which the markets have been manipulated higher over the past three months through a combination of moves that supports the yen carry trade.

It has been very effective and won’t stop working until USDJPY fails to hold 120.11, oil tumbles much further, or the dollar reverses sharply.  And, when the carry trade falters, there’s always the overnight ES ramp job, VIX manipulation, bond futures manipulation, etc.

Last night, it was the DAX breaking through resistance combined with a nice bounce in oil that enabled ES to rally 14 points.  It’s backing off now, as that same oil bounce is causing DX to plummet, thus dinging USDJPY.

It’s the same set of circumstances that led to Wednesday afternoon’s turmoil.  It’ll be interesting to see how TPTB handles it today with CL clearly breaking above a two-week TL and the resultant hit to DX and USDJPY.

Stock bulls will see this as bullish, even though it runs counter to the Fed’s objectives and will require corrective action that could undo SPX’s rally.  One possible way would be to take EURUSD down, potentially strengthening DX without as much impact on USDJPY.

The less elegant, but often used, method is to wait until after the cash close.  Of course, this being a quad-witching day and with the futures already up so big, all they have to do is hold the opening spike.  We’ll have to wait and see.

Overhead resistance is at 2102.49 today.  If SPX breaks through, our next upside targets remain intact.

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We post daily and intra-day charts for USDJPY almost every day.  But, it’s been a while since our last look at the big picture.  Last December 4, we noted several approaching possible resistance levels.  The first was the approaching .618 Fib retracement of the drop from 147 to 75 between 1998 and 2011.

With USDJPY at 119.20 at the time, we’d know pretty quickly whether Leonardo Fibonacci’s observations would hold any sway.  We wrote:

With the end of the year coming up, I suspect we’ll see USDJPY barely pause at 120.11, but instead come back to backtest it — maybe even slipping below in the backtest.  Whether they can keep the scam alive after year-end, I can’t say.  But, there is little in the way of resistance [after 120.11] other than the top of the tight, white rising acceleration channel the pair has been in since early November.

Since then, USDJPY has pushed through 120.11 five separate times.  All but one of those times — the most recent — it fell back below, sending stocks scrambling for cover.

Oddly enough, the first came on Dec 5, the day after that post.  USDJPY shot up almost 2% through 120.11, closing at 121.44.  Over the next seven sessions, however, it fell 4.9% to 115.56. SPX followed suit with a 107-pt plunge that was then miraculously erased by USDJPY just in time for new all-time highs by year-end.

It was a sign of things to come.  The impact that each rise above 120.11 had on SPX:

1.  a 107-pt drop from 2079 to 1972 in seven sessions.
2.  fell 101 points in five sessions (and, marginally lower over the next two weeks)
3.  gained 52-pts (on oil’s bounce) but tumbled as USDJPY failed a second try
4.  a 30-pt slide on USDJPY’s pullback from the Fib and the red, dashed TL
5.  a 64-pt drop (when oil’s bounce failed)

This most recent push above 120.11 was arguably the most interesting.  With CL plunging back below the long-term trend line from 1998, it was only USDJPY’s spike higher that initially saved stocks from tumbling.

USDJPY even registered a new high on Mar 10.  But, it took seven sessions of closing above the white .886 Fib at 121.12 for SPX to believe it was for real and begin its latest recovery.  Yesterday, being an FOMC algo announcement day, USDJPY was used as a blunt force object to bludgeon oil prices back down.

When all the dust settled, USDJPY had fleshed out the bottom of its rising channel and managed to close back near 120.11.

Note that it closed today back above 120.11 — but, is running into potential resistance at the white channel midline.  Clearly, The Powers That Be understand the influence USDJPY — and, that .618 Fib in particular — have on stock prices.  As we detailed in Those Wacky Central Bankers, the yen’s demise has been essential to stocks’ rise since 2011.

We don’t know whether SPX can continue to notch new highs, because we don’t know how much pain the BOJ et al. are willing to inflict on the Japanese people.

They’re already reeling from tax hikes that are somehow expected to help revive an economy that’s been circling the drain for years.  If oil prices recover in the least, the “low inflation” deceit will be exposed for all to see.  What then?

The latest brainstorm out of Tokyo stems from the fact that, at the current pace of ¥3 trillion in annual purchases, the BOJ will have exhausted the entire supply of Japanese ETFs by YE 2017 (it already purchases all the bonds the government issues.)  Will they go so far as to buy up individual stocks, too?  And, will that be enough to sustain the carry trade?

Stay tuned.

Long-term trend looking pretty solid…

…but, the bounce is running into resistance from the falling purple channel midline and the rising white channel’s .146 (shown in red.)

Downside targets favor the purple .786 Fib at 90.39, while the upside opens up above the purple midline and, of course, 94.18.