We’ll start with a peek at the Big Picture posts for each month so far this year, and wrap up with a look at what to expect going forward.
The Big Picture, January 5, 2016
On Jan 5, I was focused on the fact that USDJPY had dipped below the critical Fib line at 120.11.
Did you feel it? Something big happened yesterday, and it had nothing to do with China, Saudi Arabia, Iran or Donald Trump. Of course, I’m talking about USDJPY, which closed below the key Fib line at 120.11. Is it important? Well, the last time it dipped below this level, stocks were in the midst of a 12.5% plunge.
With SPX at 2020, I identified two important levels of support: 1984 and 1962.
With USDJPY below 120.11, and CL potentially plumbing new depths, 1962 should be doable. After that, we’ll have to see what tricks TPTB can come up with to maintain the purple channel. If they don’t, then we’re obviously in for much more downside than we’ve seen in a long, long time.
The following day, SPX dropped below 1984. The day after that, SPX plunged through 1962 and didn’t stop until it reached 1812 — a 12.9% (versus 12.5%) drop from the end of the year highs.
By Feb 8, I was crash watch. USDJPY had dropped below the bottom of a huge, 15-month old huge channel, with devastating results for stocks.
Now, as USDJPY drops through the channel bottom again, the “market’s” fate rests on whether or not the central planners will elevate the USDJPY yet again.
SPX, already down nearly 15% from its peak, had completed a huge Head & Shoulders Pattern that threatened to send the index tumbling another 17%.
When the FOMC increased rates two days later, it completed an even more bearish H&S Pattern. On Feb 11[see: USDJPY Finally Relents], I wrote:
USDJPY, along with CL and SPX, should bounce here. If you’re a bull, they must bounce here. The only question: is it too late? [Keep] an eye on CL, USDJPY and NKD for signs of a turn. You’ll know, because all three will be screaming higher.
CL, USDJPY and SPX all reversed sharply that day. CL screamed 50% higher (currently about 100% higher) in about five weeks, producing a 12% rally in SPX and a 17% rally in NKD. It was a massive, highly successful intervention that cemented CL’s role as the primary driver of stock prices. I set a target at 2000 for SPX by Mar 12.
SPX had already reached 2000 by Mar 4, over a week ahead of schedule. The FOMC and BoJ were both due to announce next steps the week of Mar 14.
And, now we face the question of whether SPX will reverse strongly or merely take a breather here. With Kuroda announcing any BoJ policy changes tomorrow and Yellen doing the same on Wednesday, “markets” remain in the hands of the central planners. Wouldn’t it be nice if they’d just publish future stock prices while they’re at it?
Given their success in rallying SPX off its Feb 11 lows, it seemed they were more likely to break out than down. I placed targets of 2050-2065 around Apr 1 and 2087 (later increased to 2098) by Apr 22.
The central banks obliged. SPX reached 2065 by Mar 30 and 2087 by Apr 18. SPX topped out two days later at 2111, 13 points beyond our upside target.
This was another post centered around the coming FOMC and BoJ actions. SPX had managed a rather extreme rising channel that was built entirely on CL and USDJPY intraday rallies. 
But, I had little faith in the BoJ’s ability to keep the USDJPY rising.
That’s probably about it for this leg. If you’re a contrarian and can hedge overnight and don’t believe BoJ has any ammunition left, this would be a great place to short. I still believe the yellow .786 at 2065 is in play…
If there’s a silver lining for bears, it’s that tilting the rising red channel over a bit theoretically presents an opportunity for a backtest of the SMA200 down at 2014 (the red dot above.) Though, it sounds ludicrous to talk of a 73-pt drop in the next day or two.
The following day, the BoJ Screwed the Pooch, and SPX began a 3-week decline to 2025, not quite to the SMA200.
On May 5, I focused on a potential bottom for SPX, identifying a backtest of the broken white channel at 2039 as the most likely scenario.
It could happen any time between now and then, and it could even wait until Friday or Monday. But, the point is to backtest and, thereby, firmly establish support in order to legitimize another push higher.
SPX would backtest the white channel top the next day, bounce 35 points, test it again on May 13 and 17 before finally dropping below it on May 19.
This post was all about the FOMC’s rate decision the following day. My thoughts on the matter:
Tomorrow, I expect the Fed to punt. I expect the dollar to try and sell off, but be propped up by central banks when the yen carry trade unwinds a little more. And, I expect oil to rise to compensate. As always, I don’t recommend trading on Fed announcement days. But, if SPX sells off, and if you’re very careful not to get whipsawed, I’d look for opportunities to short SPX, possibly down to 2017 or even 2000.
As it turned out, a steep rally in CL kept SPX on the rise through June 23, at which point it dropped through 2000 (and the falling white channel) to 1991 before beginning the biggest, sharpest V-shaped recovery we’re seen in quite a while.
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