Overnight ramp job with decent follow-through.  Be careful around 1830.75.

Though, USDJPY is making a bid to push through the white channel midline.  If it does?  No guarantee of a deeper retrace.  Yesterday’s push failed at the .886 (purple grid.)  A repeat would see the pair peter out at 104.72 and ES at 1832-1833.

Look for a turn at 10:00 am.

UPDATE:  10:35 AM

USDJPY topped out at 104.66, just a hair below our 104.72 target.

continued for members… (more…)

Equities are still in a very precarious position.  The usual pre-open ramp job flopped and the red channel integrity is beginning to look strained.  Still, with seven stick saves now at 1820-1823, we have to wonder if it’ll be allowed to get started on the next wave down.

Depending on which falling channel it’s following, USDJPY has either run out of steam or is positioning itself for a run back to 105.27.  I wouldn’t chase it, as the red .886 should hold — at least for now.

UPDATE:  10:00 AM

ISM’s services survey is out this morning.  Note the contraction in new orders, inventories, and order backlogs.  The only category which is growing faster is employment.  Oops.

Speaking of “oops,” check out the move in gold between 10:12 and 10:14 this morning.  Fat finger, or simply a loss of well-defined support?  Trading was halted, and we’ve all been advised to move along… nothing to see, here.

continued for members… (more…)

USDJPY led the way yesterday as expected.  The channel dating back to Nov 7 looks to be breaking down — or at least tilting.

The task now for equities will be to maintain downward momentum in the face of all the FOMC cheerleaders out on the talk circuit and auto sales data puffery.

So far, the emini’s ramp job looks like a back-test of the broken red channel, but we’ll have to wait and see.

continued for members… (more…)

As we discussed Tuesday, the USDJPY is the key indicator to watch. And, it’s off to a good start…

UPDATE:  10:05 AM

Look for the slide to continue, targeting the gap close at 104.33?  But, that’s just the purple .618.  The purple .786 or .886 take the pair all the way to the channel bottom and make for a more interesting first day at a decline of 1.31-1.46.

continued for members… (more…)

As we discussed last week, the Street needs a big, positive close at the end of the year.  It’s great publicity, boosts bonuses and gives banks an opportunity to offload some of the crap still on the books.

It presents a quandary, as numerous reversal signals have been generated by harmonic and chart patterns.  What’s the big picture say?

The charts to which I keep coming back are the currencies.  And, the one that promises the most mayhem is the USDJPY — which has done a remarkable job of forecasting equity moves — particularly since the Oct 2011 lows, when the Fed first started yakking about QE3.

We all know that QE = risk on. So, why has the dollar soared in the face of successive rounds of QE?   Doesn’t QE weaken the dollar?

It does, but the damage is nothing compared to the carnage being suffered by the yen, whose QE is massively greater on a relative scale.  Japanese QE = (risk on)ⁿ.  This is why bulls should be incredibly careful about chasing this equity rally.

In fact, based on the 20-yr USDJPY chart, there’s a very good chance that the pair is about to tank.  If it does, there’s a very good chance it’ll take stocks with it.  The chart below shows what happened the last three times USDJPY tagged the yellow trend line from 1998.

Note that the pair made new lows beginning in July 2011 and running through October 2012.  From a harmonic standpoint, the yellow grid is still very much in force.  The previous yellow TL tags have produced declines of 31%, 25% and 39% in the pair.   If the pattern repeats when the pair tags the TL for a 4th time, an average (32%) drop would land the pair at around 72 — a new low.

The bigger concern for equity markets, however, is what has happened to SPX when USDJPY tagged that trend line in the past.

to be continued…

 

Another exciting day of watching the market being propped up.  Nothing new from yesterday, really.  Here’s the action on the eminis today:

The Eminis are (hopefully) about to bag their own Butterfly Pattern.  It’s been an obviously “managed” march higher, with very few wiggles in either direction — not exactly the sort of market one encounters “in the wild.”

SPX, which reached its own 1.272 last Friday, is closing in on a little Crab Pattern just for grins.

As detailed last week, DJI already met its objective last Friday.

RUT reached its on Monday.

The USDJPY is a stone’s throw from the .618 retrace and trend line detailed in this morning’s post.

The dollar is poised to surge, at least short-term.

Though, the longer-term picture will depend on the response from Japan and the eurozone.

VIX put in a nice bottoming move today.

And, the 10-year traded over 3.0% today — topping the September highs (though a move lower on the fear trade is still a  good possibility.)

Gold is about to make a new low following last July’s premature bounce.

I could go on.  But, the bottom line is that just about every index and instrument I follow is at a turning point.  As we’ve discussed many times before, this is not a guarantee that markets will tank overnight.  There are huge, moneyed interests that will obviously throw everything they’ve got at this market in order to preserve their gains/prevent any losses — if it suits them.

With a big fat gain in the books for 2013, their bonuses are secure.  They can afford to let a little air out (after positioning themselves, of course) and reset sentiment, breadth, etc — again, if it suits them.

Those who aren’t members of TPTB (including yours truly, quite obviously) might take the opportunity to book gains and raise cash in the event we get any volatility at all in the next few sessions.  But, I’m certainly not expecting a steep plunge overnight (wouldn’t mind it, though.)

After that, though, things might get very interesting.

A good friend recently asked me if I was feeling better about the economy, given all the positive news.  Hardly.  Much of the good news is more fabricated than ever.  Most of the rest is the by-product of the enormous amount of cash still being pumped into the markets.

Insurance companies, pensions, banks (especially banks) and 1%’ers around the world have to put all that cash somewhere.  As long as the markets don’t fall apart, they’ll stick to their asset allocation models.  If the markets burp, enough will step to the sidelines that we’ll get a nice little correction.  If the markets do more than burp, the downside potential is huge.

We have plenty of potential catalysts.  My favorite is the derivatives market.  Last I looked, it was up to around $800 trillion dollars, though I’ve been told it’s now closer to a quadrillion.  How often do you get to use a word like “quadrillion?”  These are mostly contracts between banks and others to limit exposure to interest rate and currency swings.

The first problem is the size of the market.  The second problem is the size of the market relative to the capital of the banks whose guarantees are on the line.  The third problem is that banks aren’t required to detail their holdings in their financial statements; a simple “don’t worry, it’s all hedged” is about all you’ll see.

The final and most serious problem is that these obligations have been sliced and diced so many times that no one really knows what might happen if a sizable player goes belly up.  We’ve been conditioned to think the Fed and/or ECB will come to the rescue, but what if circumstances prevent it.  What if a battle breaks out over who’ll eat the losses?

I believe that a replay on the scale of mortgage derivatives and Lehman is not only possible, it’s somewhat probable.  What if the London Whale’s $8 billion loss in derivatives was not an outlier?  What if it was the tip of the iceberg?  What if it’s most of the banks in Southern Europe this time?  Or, China?  Woudn’t that be fun?

I realize that such a negative economic viewpoint makes me sound paranoid. Maybe TPTB will stick the landing just right.  Maybe when the music stops, there will be extra chairs available.  Maybe this time will be different.  I sincerely hope so.  But, until I start sleeping better at night, I’ll continue to look for reasons to short this market — and, hope that it proves me wrong.

Stay tuned.

 

In our May 29 update on the Nikkei [see: HERE], we noted the index’s reversal at the .786 and theorized about a drop to 13,112 or even 12,343 as a result.  The actual decline clocked in just a tad lower at 12,310.

Now, the Nikkei is coming up on a Bat Pattern completion at 17,068. Given the steepness of the rising third wave, even a mild .382 retracement would knock the index back by 20% or so (13,500ish.)

A close-up shows the overlapping Butterfly Pattern also completing at about 17,000.

One would expect such a decline to correspond with a reversal or at least a slowing of the bloodletting occurring in the yen.

So, it’s interesting to me that the USDJPY is approaching the pivotal .618 Fib retracement at 105.57 and the trend line that has smacked it down by an average of 33% the last three times.

There have been times when the pair’s weakness (yen strength) moved counter to US equities.  But, since 2012, it’s been a match made in heaven (or at least the Eccles Building.)  But, contrary to Bernanke’s and Abe’s assertions, what goes up…

In case you’re wondering, the previous reversals at the trend line corresponded with declines in SPX of 19%, 31% and…ouch… 57% (the thin purple line below.)

BTW, that .618 retracement in the USDJPY is of the drop since the 2007 highs.  SPX, of course, recently completed a 1.272 extension of its drop from its 2007 highs.  The fact that they’re occurring at the same time raises the stakes for stocks.

If USDJPY reverses as expected, look for it to retreat to at least the channel bottom at 99.84 and drag SPX back below its 1.272.  Otherwise, we could be off to the races.

Stay tuned.

Harmonic Patterns aren’t perfect. But, when this many of them line up, all screaming the same warning, it makes sense to pay attention. In no particular order…

SPX has completed a large Butterfly Pattern.

DJIA has completed a large Butterfly Pattern and tagged the channel top that connected the 2000 and 2007 tops.

RUT has completed a large Crab Pattern from 2007, and another from the 2011 highs.

Transports are nearing a Crab Pattern completion.

AAPL has completed a Bat Pattern and is near a .618 retracement of its drop from 705.

The Nikkei 225 just completed a Bat Pattern 7 months in the making after reaching the .786 retrace of the drop from 2007.

The EURUSD has completed a Crab Pattern and Bat Pattern after reaching the .618 retracement of the drop from May 2011.

Gold is testing its June lows.  It should bounce here, with Fib/SMA targets at 1277, 1307, 1337 and 1380 before it breaks down to 1155.

And, interest rates are rising — but, are ripe for a sharp fear-induced reversal.

AAPL’s rally from 385 likely represents a backtest of the broken red channel within the larger white channel.  It recently reached our target [see: Aug 19 Update] on Dec 5, a little behind schedule.

The white Bat Pattern completion seems to suggest sell the China Mobile news, while the potential for AAPL to reach the yellow .618 argues otherwise.  The rising white channel nested within the top 25% of the larger white channel also suggests a reversal here at the yellow .618 or white .886.

As noted in August, AAPL failed to extend further than the .618 Fib level many times on the way down from 705.  Could this be another terminal .618 tag?

Whether this is the final thrust or the precursor to a Gartley Pattern completion at 636 remains to be seen.  But, without a new high here, we could easily see a backtest of the broken falling purple channel at a typical .618 retrace (of the rise from 385) at around 460ish.  Even a mild .500 retrace indicates 480.

Bottom line, the breakout of the falling purple is undeniably bullish.  Though I remain constructive on the stock, we could get a 15% correction before it advances any further.

Good luck to all.