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I can still remember my first encounter, as a boy, with the ratchet wrench. Back then, things were still held together by nuts and bolts. These days, of course, we don’t bother to fix broken things. We toss ’em or, if we’re especially enviro-conscious, load them in the Yukon and drive them to the recycling center.
The ratchet wrench was cool. You could quickly take apart and reassemble your bicycle, your sister’s roller skates, even a 1970 Camaro. Instead of bruising your knuckles with an angle or combination wrench — with the constant removing and refitting of the wrench over the nut — you slipped a socket over the nut just once and cranked it back and forth.
Despite the fact that you were moving it back and forth, both clockwise and counterclockwise, it would only tighten or loosen — whichever you wanted it to do.
The ratchet was invented way back in 1913 by Robert Owen Jr. in Shawnee, Ohio. It must have been a godsend to manufacturers back then. I’m willing to bet that Mr. Owen never dreamed that, 102 years later, it would be used to prop up the stock “market.”
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Regular readers of this site know that the USDJPY is the most commonly-used tool to keep stocks on the rise. [see: What Really Drives Stocks?] But, what happens when USDJPY levels out? It stands to reason that stocks would, too.
USDJPY, like a ratchet, can be used to force stocks in only one direction (up, obviously), even while it’s swinging back and forth. The trick is to bring it back down in the low-volume hours after the “market” closes, when the futures are much more easily manipulated. The past two weeks offer a great example.
SPX had rebounded to the top of the channel which originally guided prices lower (white arrow, below.) It was also approaching its 100-day and 200-day moving averages — serious overhead resistance. TPTB needed a way to get it up past all that resistance in order to have a shot at new highs.The USDJPD has been extremely helpful in this regard. But, for whatever reason, the BoJ hasn’t seen fit to expand QQE. It has been stuck going sideways for over 10 months. This is where the ratchet comes in.
USDJPY is ramped higher in the 30-60 minutes before the cash “market” opens, and continues to rise until the cash close. This, of course, drives SPX higher during the hours in which it’s quoted.
Then, as soon as the books are closed on another gain for SPX (or, big losses are averted) USDJPY is reset lower where it can repeat the whole exercise again the following day. Rinse and repeat.
The cash hours are highlighted in the USDJPY chart below, making it easy to see that SPX (in white) benefits from USDJPY’s gains, but never suffers from its overnight retrenchments.
When USDJPY can’t perform, for whatever reason, CL is only too glad to do levitating duty. Just this morning, it rose from a low of 45.56 to a high of 46.73 in four distinct periods, each of which lines up with ES/SPX’s need to avert a reversal at or leap over a point of natural resistance.
A 1.17 gain may not seem all that much, but it’s a 2.57% move — the equivalent of 54 points on SPX. And, the entire move happened in about 2-1/2 hours — for no particular reason, of course, just that it was necessary in order to prop up stocks.
Ratcheting worked pretty well today. Between USDJPY and CL, SPX got all the way back to 2104 — the 88.6% retracement of the drop from 2134 last May to 1867 in late August. This is quite a feat. It would be all the more impressive if it didn’t tank, now that it has completed a Bat Pattern.