The Nikkei’s Strange Divergence

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One of life’s certainties over the past decade or so has been that the BOJ would always find a way to keep the Nikkei rallying. When QE_nran out of steam, there was always direct purchases of stocks via ETFs. So, it was surprising to see NKD’s rising channel, in place since Fukushima, break down in December.

True to form, it has since made a strong comeback. But, it has paled in comparison to the S&P 500 (the thin purple line.) While SPX is approaching its all-time highs, NKD is approaching a .618 retracement and a backtest of the broken channel.A possible warning sign?

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A big part of the problem is that the direct transmission mechanism, the USDJPY, has been in a steady contraction since June 2015 — shortly after SPX also topped before backtesting 1823 a few times.Sure, we can get algo-triggering “breakouts” in order to bump stocks up a little. But, while SPX is triggered by USDJPY among other factors, the USDJPY is NKD’s life blood.

Last night’s ramp has been pretty much as all the previous ones. ES is bumping up against the purple TL, so the insinuation is that we’ll see a pop, drop and recover like all the rest.ES can now backtest its SMA10 without dropping below Monday’s lows.Aside from USDJPY’s help, ES is benefiting from VIX’s continuing threat to break down. Is it ludicrous? Of course. Is it working? Damn straight.EURUSD is still going sideways, waiting for whatever…

While RB and CL are just holding on for SPX to push above 2940.91. SPX’s breakout is looking more and more likely. But, if the purple channel holds, it doesn’t necessarily mean the bears are finished. BTW, today’s SMA10 is now up to 2894.99 — right where that gap from Apr 8 is.COMP is now 1.2% away from new highs, compared to SPX, which came within 0.7% on this morning’s pop.

UPDATE: 10:00 AM

We got the pop…now the drop. Watch 2895.95, which is just above today’s presumptive SMA10 at 2894.99. Based on yesterday’s close, the SMA10 is 2891.61.