The Nikkei barely paused at the .886 Fib yesterday, choosing instead to backtest it in order to leave its options open.
The weekly chart shows that, should the last high be broken, the next serious Fib resistance isn’t until the larger scale .886 in the 17,100 area. This works with the channel and TLs.
The Nikkei continues to drive US equity prices higher as an integral piece of the yen carry trade. It ramps during the day, and resets during the night (lighter shade.)
The USDJPY has broken out of the yellow channel. So, we have to consider the probability that the purple channel is in play — to the extent that any chart pattern matters anymore. The BOJ’s Kuroda says all is well, it’s all part of the plan. But, both Japanese businesses and consumers are frustrated with rising import prices.
Note the red channel has the same slope as previous engineered rallies — neither of which ended well.
But, look closer and you’ll see the small purple line off to the side of the red channel. This is the new channel in which USDJPY is resurrecting its rally. At some point, it will either rejoin the red channel or backtest it. The same thing happened in Apr 06, when a break in the white channel send the pair plunging (SPX lost 7.5%.) It regained its footing and went on to make new highs in Feb and July of 07 before the wheels came off completely at just past the purple .618.
Bottom line, the pair is completely manipulated — as is the Japanese stock market, in which the BOJ routinely “invests.” It will continue to rally until the pain of importing much more expensive goods leads those afflicted by it (anyone other than investment bankers, hedge funds and their central banking lackeys) to force Abe from office. The chorus is growing.
For anyone wondering why the SPX stopped on a dime this morning, it was an old friend. Hint: there’s something to please both bears and bulls.
The Inverted H&S Pattern we forecast last month has finally completed. A close above 2020ish will confirm. Good for bulls, right? Only fly in the ointment is everything else: the dollar, USDJPY, NKD, notes, etc. are all overbought. So, there’s a fair to middling chance this will not be a clean break and moon shot.
If it is, the target is 2115 from 2020 — a nice 4.7% rally. If it isn’t, there’s a very big chasm down below that QE won’t be around to prevent.
The thing that really puzzles me is that 2115 isn’t 2138 (which is the very important 1.618 Fib of the 2007-2009 drop from 1576 – 666.) Why get us most of the way there?
However, 2138 works quite well as a target from 2044 — the grey 1.618 of the Jul 24 – Aug 8 that set up this IH&S in the first place. And, it just so happens that the grey channel midline reaches 2044 around Oct 10. This leads me to consider the possibility that SPX will not break out in the next few days, but will dither and dally in some sort of choppy expanded flat for a while — maybe even dropping below the current right shoulder and testing a SMA50 (1975) or SMA100 (1950.)
We’ve seen countless H&S Patterns fail in the past year; so, it’s not hard to imagine that this one will be yet another great big head fake. Still, the confluence of the 1.618, the grey 1.618, and the 261.8 Time Fib on Oct 20 seems more than coincidence.
For anyone who doesn’t remember, the Time Fib is generated off the 2009 low, with the May 2011 high as the .618. It fits many of the highs and lows since 2009 extremely well. The hitch is it doesn’t tell us whether Oct 20 will be an important high or low — just that it might be significant. And, as the chart indicates, it can easily be off by a week or two. But, it’s worth keeping an eye on it — especially since past Octobers have been significant, and this one will feature the last installment of the freak show that is QE (for now.)