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Unintended Consequences

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With the prospect of higher rates off the table for now, the US dollar has suffered a bit of a body blow that has translated into relative strength for the euro and the yen.  It is the yen strength that is problematic for equities, as the yen carry trade relies on an ever weakening yen.

2015-09-18 DX daily 0600continued for members…

Note the corresponding weakness for USDJPY (yen strength)…2015-09-18 USDJPY daily 0600…and EURUSD strength.2015-09-18 EURUSD daily 0600The futures have sunk to the bottom of the rising white channel…

2015-09-18 ES daily 0600  …which is the initial target for SPX this morning.  I suspect, however, that it will sink further, tagging the SMA10 (1961.38) and possibly the SMA20 (1956.66.) 2015-09-18 SPX daily 0600According to the NKD chart, however, we should see more downside next week — with the test of 17,000 coming as soon as Monday.  Remember, it’s all about pressuring BoJ to expand QQE.2015-09-18 NKD 60 0600UPDATE:  9:42 AM

Unclear whether we’ll get to the SMAs on the initial push. 2015-09-18 SPX 60 0645 USDJPY is trying to decide whether or not to bounce.2015-09-18 USDJPY 5 0645I’d not close out our initial short unless USDJPY can pop back above that TL.

UPDATE:  9:54 AM

USDJPY just popped above a tiny bit, as SPX is having trouble getting any lower.  Could be a head fake just to loosen things up a bit.   Safe play is to take profits here, but I think there’s probably a bit more coming after 10AM.

2015-09-18 SPX 5 0655Note that the .618 (1958.94) is a very common target level after completion of a Butterfly Pattern as we had at yesterday’s 1.272 up at 2018.

UPDATE: 10:12 AM

USDJPY just tagged its 5m SMA200…2015-09-18 USDJPY 5 0712

… so the SPX bounce is likely over here at 1972.21.  Back to short with tight stops in case USJDPY has higher in mind.

2015-09-18 SPX 5 0712Don’t read too much into the placement of the rising purple channel, as it is a work in progress.  The placement above fits the midline really well, but not some of the prior lows.  Looks like we need at least one more wave down.

UPDATE:  10:33 AM

USDJPY jumped above that SMA, (stopping out our short position) and is approaching the .618 at 120.11.  But, it could reverse at the white .382 and backtest the falling white TL.2015-09-18 USDJPY 5 0712

If so, SPX has found overhead resistance at the .786 and could go ahead and try again for the .618.  I’d be short again here, but keep a close eye on the yellow .382 at SPX 1969.28 and, of course, USDJPY.  It started all this, and is likely to continue driving it.

2015-09-18 SPX 5 0733BTW, in defense of this being a significant retracement of the move up from Aug 24, or a deeper decline to the white .886 at 1856, VIX has broken out of and backtested its pennant pattern, indicating it has a lot higher to go.2015-09-18 VIX daily 0741And, TNX has broken down from its rising wedge that was making a rather ugly bid to reenter the rising white channel and break above the larger channel’s midline.2015-09-18 TNX daily 0741UPDATE:  10:56 AM

USDJPY pushed above the .382, but with 120.11 just overhead, SPX is leery of taking the bait.2015-09-18 USDJPY 5 0756 2015-09-18 SPX 5 0756

Nevertheless, the risk just tilted to the upside.  Either dump the short, or be prepared to ride it through some uncomfortable upside of 6-12 points (1981-83.)  While 120.11 should prove to be good resistance, there’s no way of knowing whether the algos will treat it as such.

UPDATE:  11:09 AM

Last chance to turn around if it’s going to before 1981-83.2015-09-18 USDJPY 5 0809UPDATE:  12:13 PM

SPX breaking trend here at an odd time/place.  I’d get short, but ready to go long again if it finds support at 1969.28.

2015-09-18 SPX 5 0913UPDATE:  1:02 PM

SPX has found support at a line from Aug 24 to this morning’s low.  This is a legitimate bounce point, so we’ll try a long position here and see what develops — probably only the 5-min SMA50 at 1972ish. But, it could be a C wave of a more complex wave 4 up to 1983. Still prefer 1955-1956, but willing to concede this could be as bad as things get until approaching the close today or even Monday.

2015-09-18 SPX 5 1001UPDATE:  1:15 PM

I think SPX will go ahead and take the plunge here. So I’d suggest shorting here at 1967.50 with 1955-56 as the objective and stops around 1969.30.

2015-09-18 SPX 5 1015USDJPY could still break higher, but I think it goes lower first.

2015-09-18 USDJPY 5 1017TNX poised for lower…2015-09-18 TNX 60 1017UPDATE:  2:00 PM

There’s the .618 tag at 1958.94.  It could definitely go lower, with the SMA20 at 1956.66 and the .786 off last week’s lows at 1955.32 — so tight stops.  But, this would be a reasonable place to take a long position.2015-09-18 SPX 5 1101UPDATE:  2:16 PM

Potential resistance here at the SMA20.  Would revert to short on failure to punch through.  Here’s a chance for USDJPY to break out if it’s going to.  If SPX punches through, watch for channel bottom around 1967.2015-09-18 SPX 5 1116UPDATE:  2:26 PM

Backtesting the channel bottom, so would revert to short here unless USDJPY comes to life. 

2015-09-18 SPX 5 1126TNX continuing to slide, but rather controlled… 2015-09-18 TNX 60 1126UPDATE:  3:26 PM

I’d go ahead and take profits here at 1958.69. 

2015-09-18 SPX 5 1226There’s probably more on the table, but USDJPY is rising, and it’s just a matter of time before things start getting nutty.2015-09-18 USDJPY 5 1226As discussed above, there are plenty of reasons to suspect further downside on Monday.  But, so often, a day that ends at the lows is followed by a gap up the following day.  Not worth the risk unless you can hedge over the weekend.

If it bounces here in the last 30 minutes or so, I’d play along on a rise through 1961 (particularly if USDJPY > 120.11) with a target of 1969.28+.

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