Dragging Warren Buffett out yet again to calm the markets… makes me wonder who they’ll get after he heads to that great big bridge game in the sky.   Maybe this guy?

 

The weakness in the futures continues…though it looks like we’re getting a bounce at near the red .886.  Note the change over to the new contract pricing for the ES.  It puts the yellow 1.272 at current levels.The SPX opened down, but is likewise getting support near its red .886.  A substantial bounce here at the former lows could set up a head & shoulders pattern.USDJPY is also being propped up at the former lows.Coming up, price targets…(continued for members) (more…)

It gets worse than this, with downside targets at: (a) 2.70, (b) 2.37 and (c) 1.64.

It goes to show what can happen to a highly levered asset that’s the underlying for billions in debt…

Futures are up a few points after yesterday’s bounce and overnight ramp.

USDJPY took a tumble overnight, but is mostly recovered.

The bulls should try to support the e-minis at 1853 — a smaller scale .618 and channel midline.

But, SPX also has support at the .500 — the midline of its rising red channel.

USDJPY should seek support at the white .500 at 102.48.  If it fails, we’re back into 102 watch mode — with the .618 at 102.18 as the most likely target.

If all these .618’s don’t hold, things should get interesting real fast…

Those who have followed this blog for any length of time know about our focus on the Japanese economy and the yen.  I presented this chart in December, which shows the impact on stocks of the last three USDJPY reversals off a trend line (or top of a channel, depending on how bearish you are) it recently tagged a 4th time.

The latest out of Japan is the BOJ deciding to hold easing at current levels (60-70 trillion yen or $590-690 billion.)  This surprised many, given that exports have fallen off a cliff on the eve of a 60% consumption tax increase (from 5 to 8% on Apr 1.)

This article from Reuters sums up very well the problem Japan faces: trashing the yen can’t undo the systemic economic imbalances of a stagnating economy with way too much debt on its hands.  Japan exports have leveled off, producing record trade deficits (in spite of a weaker yen), while the cost of imports continues to rise (thanks to the weaker yen.)

Japan’s CPI conveniently leaves out fresh food, which has soared over 17% since the Nov 2012 assault on the yen (Japan imports 40% of its food.)  Is it any surprise that consumer confidence is moving in the opposite direction?

And, fuel prices have soared — exacerbated by the continuing fallout (pun very much intended) from Fukushima.  The consumer, who also faces next month’s 60% tax hike mentioned above, is already getting crushed by QE.  So, why not scrap it?

If they do, rates will skyrocket.  Outstanding debt is 242% of GDP, and annual debt service (23 trillion yen) is already greater than 50% of tax receipts (43 trillion.)  With QE of 60-70 trillion yen, the BOJ is essentially monetizing all of Japan’s debt directly or indirectly (issuance of 41 trillion yen is anticipated this year.)  In short, QE is the only thing keeping rates “manageable.”

In sum, the BOJ is in a box from which there is increasingly no escape.  They can make ends meet by issuing much more debt to fund the 43% of expenditures not covered by tax revenues.  Issuing that debt keeps rates low enough to be able to pay the interest.  But, a rock bottom yen bites the consumer in the ass and, in the end, means tax revenues go sayonara, increasing the need for more debt…   Wash, rinse, repeat.

As BOJ’s Kuroda put it in his latest “let’s play make-believe” press conference:

When the sales tax hike was raised to 5 percent from 3 percent in April 1997, Japan’s economic growth turned negative in April-June but rebounded in July-September. But, the Asian currency crisis erupted in the summer that year and Japan fell into a recession as it faced its domestic banking crisis in the autumn.

He assures us that this time will be different, but I think it’s wishful thinking.  I think Japan is very much on the path to default or depression, and there’s no amount of debt issuance that can alter that outcome.  When the money spigot turns off, the primary beneficiaries of Japan’s QE hot money (Thailand, Singapore, Philippines, Malaysia, Korea… not to mention China (Japan’s biggest trading partner) will go tapioca.  The Asian currency crisis will come roaring back in a big way.

Futures are up a few points…

…while, USDJPY is going sideways.

The latest out of Japan is the BOJ deciding to hold easing at current levels (60-70 trillion yen or $590-690 billion.)  This surprised many, given that exports have fallen off a cliff on the eve of a 60% consumption tax increase (from 5 to 8% on Apr 1.)

For more on the importance of this development, please see: Sayonara Abenomics.

The eminis are down 4.50, off the lows of late last night after reacting to the sideways channel’s midline.

USDJPY reacted nicely at the .618 on Friday, but bounced back after heavy intervention very early this morning.

USDJPY popped to the .618 with this morning’s jobs report.  It also represents the midline of the red subchannel.  It appears to me to qualify as a completed corrective wave — though I can’t discount the possibility of the white .786 at 104.43.

The bigger picture still shows the lopsided nature of the yellow channel’s action.  The length of the 2nd wave has probably taken the white .618/1.618 combo (86.58) off the table as the worst case scenario for the next leg down.  The .500/1.272 combo at 90.50 looks much more likely — with a time frame of mid-late April.

The white .886 at 95.11 would be somewhat more likely — assuming the yellow midline can be broken.  The purple .618 at 100.17 still looks like the immediate downside target — probably around Mar 11-13.

The key, IMO, will be the Dow.  It popped, along with everything else this morning, but tagged its well-formed channel’s midline and promptly hit the brakes.

We’ll keep an eye on it.

The Nikkei 225 is testing its SMA50.

The USDJPY, which busted out but fell back yesterday, has busted out again — only to run into its own SMA50 at the .500 Fib.

And the fans algos go wild…

UPDATE:  1:55 PM

Bat Pattern completes on DJIA.   It makes for a good top, especially in conjunction with SPX at 1.272 for a Butterfly — if there’s such thing as a reversal anymore.  The key will be getting back below DJIA 16,300.

The big picture shows that the logical next step would be to retest 14,198 — and, soon.  But, logic seems to be in very short supply in this market.

Why the focus on the Dow?  Unlike SPX, the long-term chart is pretty straight-forward.

GLTA.

USDJPY got caught up in the low-volume bot action yesterday, but — unlike SPX — is still shy of an .886 retrace of the drop from Feb 21 (102.82) and, of course, still south of the .382 retrace of the Jan 2 highs at 105.43.

SPX is in its own world, closing in on the 1.272 extension of the drop from Jan 15.

While the Dow is still south of its .886…

…as are the transports — despite the obvious IH&S.  Confirmation of the non-breakout?

And, the Nikkei continues to falter way down at its .382.