Market Update: A Bounce is Likely

I'm pretty sure I know what we just experienced, I've mentioned it numerous times this week, the disconnect of ES from the USD/JPY correlation, it happened 3 or 4 times earlier and each time was brought right back to the USD/JPY correlation. I showed this on a chart in this post, Time to Start Looking at Trades... USD/JPY Update,  this morning and talked about the probabilities for reversion to the mean.

Here's the chart from the post linked above from this morning...

 This morning's 5 min chart of USD/JPY vs. ES (purple) and the disconnect, there have been at least 3 or 4 incidents that were similar and each reverted back to the USD/JPY correlation, the downdfart in the market since just after 2 I believe is likely part of reverting back to the correlation, especially if USD/JPY bounces as I suspect.

Here are the same charts from just a few minutes ago.

 The 5 min ES (purple) vs USD/JPY, it's not at reversion to the correlation, but a very good start.

This is a 15 min example and at the red arrows you can see past incidents, none as big as this, but there was even one yesterday with ES running above the correlation only to be brought back down.

 The USD/JPY wasn't part of the move as it hasn't moved much, but the 3C indication intraday suggests it will test $102 as I suspected this morning.

Here's why...

 The 5 min Yen has a nasty leading negative, that "should" be enough to send the Yen lower and USD/JPY higher to test $102, it will probably hit the reversion correlation with ES on the nose.

On the same 5 min chart, the $USD which was already in a bad position, but was improving a bit earlier this morning has lost that improvement, so once the market lets go and USD/JPY comes down, I suspect it will be a nasty drop.

The 15 min Yen chart is positive which would support the fall of USD/JPY and a nasty broad market drop.

Essentially everything is pretty much the same as this morning, except the reversion to the Carry Trade correlation (that was expected) seems to have taken place to some degree.

As for the signals in the averages, nothing very strong right now, but a few suggesting a bounce in line with the Yen 5 min chart.

 ES 1 min


NQ 1 min


TF 1 min

The 5 min charts are horrible, VERY negative.

 IWM 1 min looks like it wants to bounce, this would be in keeping with this morning's analysis of the Yen 5 min chart.

And IWM 2 min, but other than that, things are really starting to look bad, so it is finally looking like it's time to start entering shorts and any bounces along the way would be very helpful.