The EURUSD tagged our 1.22635 target from Dec 3 [see: Update on Currencies] overnight, leaving just three more year-end targets to reach: ZN, DX and VIX. Note that, like most other coincident indicators, EURUSD prices have diverged from SPX (thin purple line) — particularly over the past six months.
Following news that Japan’s Q3 economic contraction was even worse than originally thought (-1.9% versus -1.6) the USDJPY has also sold off — down .50% so far. Incredibly, a Japanese government spokesman was immediately in the news saying that “the economy continues to gradually recover.”
USDJPY, along with VIX [see: Our Unrigged Markets] provided the usual closing bell boost to equities Friday afternoon, and is now leading futures lower (-6.5 at present.)
SPX reached a little higher (2079.47) than we expected Friday before turning around and sliding toward the close. The above-mentioned last second manipulation by USDJPY and VIX saved it from a red day.
With USDJPY overshooting the .618 to tag the channel top and a small scale 2.618, I wouldn’t be surprised to see its rally fizzle here and SPX drop back from 2077 to set up for some of that chop we’re expecting. Any significant downside should be constrained to 2055 — as the SMA20 is about to cross the red TL connecting tops from the past several months.
If USDJPY can hold the rising wedge lower bound, SPX should hold the small white channel. If not…
continued for members…
If the white channel comes undone, the white channel will yield to the purple and/or red channels shown below. The red is parallel to the TL connecting the year’s tops, while the purple is one of those arbitrary channels that has been tilting as momentum slows.
TPTB are clearly intent on keeping SPX above the 1.272 Fib and treating it as a bullish backtest (despite crumbling market fundamentals.) So, I don’t expect it to drop out of the purple channel unless it’s on an intra-day basis.
A reminder, these are the year-end targets mentioned back on Dec 3 that should get SPX up to 2138-2142.
UPDATE: 2:00 PM
SPX just tagged the dashed, red TL, and USDJPY the rising wedge. At 2054.72, SPX has reached not only our nominal downside target but the SMA20 as well. Look for a rebound here.
