Markets Update

I want to get this post out not as a victory lap, but because there are important concepts here that we use every day and this is one of the best illustrations of those concepts, I hope you can sear them in to your mind not only for the current market and forecast, but every asset we analyze.

So far we have quite an open and overnight session, all based on the USD/JPY pair that as of this morning has not only definitively broken the $120 area, but all the way as low as $119 this morning around 9:20 a.m. (EDT). I'm pretty sure you heard the USD/JPY was going down HERE FIRST, whether in Market Updates throughout the day or the very specific post yesterday, USD/JPY Lever About to Give Way.

The $USD/JPY is essentially the key to everything that's happening right now. Whether it be our longer term forecast from December 12th, that so far has been spot on or from the short term USD/JPY expectations of the next several hours ahead of the post or our longer term or rather big picture divergences in $USD and JPY, both suggesting we are just getting started and just as the FX pair ramped the market on the open yesterday, it's important as one of the last levers to give out and doing the exact opposite today, again right on time in the 2nd day of the Santa Claus rally, also part of our forecast for the markets.

This has wreaked havoc all over the world's major indices with the Nikkei 225 down -1.57% overnight and our larger forecast for the Nikkei via our 3C futures chart of /NKD, posted again yesterday...

Not only did we catch the accumulation of the Nikkei on the 12th and 15th, but also knew the move we expected to lift higher off the accumulation would fail, this is where one of our 3C concepts comes in, the divergence of highest probability. With the 4 hour NKD chart so negatively divergent, it didn't matter what the Nikkei did on the upside, its highest probability resolution was for a move back to the downside and a strong move.

 The NKD 30 min chart with accumulation at December 12th-16th , move higher and distribution in to the move leaving a leading negative divergence the Nikkei 225 needs to catch down to.

However, the important part is the concept of the highest probability resolution and with the 4 hour chart below leading negative, it was only a matter of time before the Nikkei gave up the gains which it is starting to do now.

4 hour 3C chart of the NKD leading negative and in big trouble. This was the highest probability resolution and still is, much like our market averages and Index futures.

Don't forget the match that lit this fire, USD/JPY downside and our macro trends for the Yen and USD both supporting this 4 hour chart.

So while some are saying that the USD/JPY's decline has something to do with several billion in options pinned at $120, the two events are inseparable, the movement of smart money in underlying trends makes this clear as I pointed this out time after time yesterday in leading indicators with the phrase, "Obviously they knew this was going to be a head fake move" as indicator after leading indicator all showed the same negative disposition.

Other Asian markets fared little better with the Hang Seng -1.14%, the Kopsi -0.60%, the Shanghai Composite -.10% the ASX -1. At last look the European markets had the FTSE down -1.43%, the DAX down -1.22% which makes you wonder about the flight to safety yesterday in 2 year bonds, my larger point is, just as leading indicators showed us yesterday, all of these markets are connected. In addition the CAC-40 is down -1.06%

After yesterday's 2 year German Bund hit a new record low yield of -10 bps, overnight thus far we have seen Italy issue a 10 year Bond below a 2% yield for the first time ever. Spanish and French 10 year yields are falling as well as the flight to safety trade continues, perhaps given away yesterday pre-market with German 2 year Bunds hitting new record low yields.

While the Greek situation isn't helpful at all, I've seen much worse in Greece, much more imminently and the market totally ignore it. I'm not saying that Greece isn't having an impact, but after all we have seen and how far in advance we were able to forecast it, I'd say it's silly to believe this is all about Greece or commodities.


Also as a result of the USD/JPY move lower, gold jumped overnight with GLD up 1.85%, you may recall about a week and a half ago I closed a GLD short for a minor gain as there was no longer an edge in the trade. It seems a not well known pairs trade has taken over, the Yen/Gold trade.

 1 min Yen is still in line with its move higher, looking a little frothy short term, but not outright negative in any way.

Gold Futures put in a positive divergence overnight, around 11 p.m. to 1 a.m. as you can see and have been in line since, only recently with a small negative divergence as it too may be getting a little frothy.

There are some short to intermediate term GLD positive divergences, the longer term charts around 30 and 60 min haven't fallen in line yet, but you probably know my long term thoughts on gold and gold miners, I'm just not convinced we've put in the final base for a move to the upside yet.

I'll continue to update the market and add additional position ideas as they come up, but I think you know roughly where I believe we are on the map according to our forecast,  but remember, Wall St. will never make it obvious or easy and will try to shake you out, this is part of the reason I wanted you to see the aftermath of our USD/JPY call, the same charts that were telling us yesterday this was coming are very active and stronger on many more assets as the last of the levers gives out.