It has been interesting the last couple of weeks to watch major macro trends grow on strong futures charts from 1 day to 4 hour to an hour and keep moving down. With multiple timeframe analysis in 3C, a macro trend first starts as a small trend on shorter timeframes and migrates out to longer timeframes until it hits very long timeframes, the $USDX futures is a great example example. for 3 months the $USD closed higher every week, but we started to see divergences on 15 min charts then 30 min, then 60 min and now all the way out to very ugly 4 hour charts and actually beyond to a daily chart.
To the left you can see the support for a strong $USD as it closed higher for 12 consecutive weeks causing the F_E_D to fear it would break the back of the Global economy, a couple of months later and Japan is in recession for the 4th time. However we had said during this strong $USD run that we were seeing signs of distribution. The concept iis not hard to understand, distribution or accumulation of a position has to start somewhere, it's not an instantaneous process, it's like building an account or a structure, thus it grows through the short timeframes and migrates out to longer timeframes as the diveregnce gets stronger and is able to be picked up by the longer timeframe charts, that's the simple logic of it. However once we reach a strategic divergence like that, we tend to see them maintain the macro divergence and then migrate back to the shorter timeframes, apparently this is due to positions being tatcially set up, market makers, middle men and smaller professional traders taking positions until we hit the fastest timeframes.
Just like yesterday's post regarding financials and FAZ, Financials/ FAZ MICRO/MACRO Market Proxy , which was not only posted as a FAZ/Financials update, but an example of a market proxy. FAZ is acting as a broad market proxy and specifically of this example or concept above.
I have maintained for years that when the market comes crashing down as it only can when built on a house of cards, especially when the F_E_D goes and starts pulling those cards, that the Yen would rise. From "A Currency Crisis" linked on the main page, I said on April 14th 2013,
"I believe the higher $USD and a higher Yen are both going to put significant pressure on the market, not to mention everything else from F_E_D policy to market breadth and leading indicators."
The gist of the articles was that a higher Yen moving up out of control would occur in tandem with a market decline, not only signalling the end of the USD/JPY carry trade and with the $USD moving lower or expected to that would be one of the effects, but more importantly that Japan, the world's 3rd largest economy will finally have lost control of their QE-Zilla, which has lifted their equity market by a trillion, but has sent their GDP to a quadruple dip recession. ABE'S POLICIES AREN'T WORKING.
For me, part of what has been interesting is watching this divergence grow to a strategic point, the highest probability resolution and now especially since this week's Japanese recession, watching the divergences move back down the scale, as mentioned with the FAZ example yesterday, when the shortest timeframes are hit, we should have a the ultimate timing marker.
This became even more clear after the Nikkei lost nearly 3% yesterday.
Today Abe has FINALLY called for snap elections, the same news story that headline scanning algos keep picking up and running with from different sources but most often repeated like it's new news by Reuters, even with a 2 week delay between stories, the second time reported as if it were the first altogether.
Overnight Abe called for snap elections seeking a mandate for his economic policies, this is where Abe, "might" just get kicked out of office, not because of never ending promises, but because they aren't materializing and the average Japanese resident is much worse off.
Abe has attached to the snap election a mandate to delay next October's expected sales tax hike in Japan and his wanting to delay that for another 18 months under the guise of "deflation", it's really to avoid an all out catastrophe as the economy is in the 4th recession. more than anything, the snap elections that have been talked about for weeks are to seek a mandate for the tax increase delay and a mandate of his economic policies, however the Finance Minister has tried to guarantee the ruling party stay in power by adding that a $2-$3 trillion Yen stimulus package will be included (about $17-$25 billion, not that big). As of yet, Abe has not confirmed to my knowledge anything about a stimulus package, but it is clearly an effort to maintain Abe and the ruling party's control and seek a mandate for his insane policies that have ramped the Nikkei and sent the economy in to recession.
As Bloomberg notes, a loss of Abe's majority in snap elections would be a rejection of Abe-enomics.
Goldman Sachs believes the elections would be held December 14th.
As Abe announced snap elections this morning, the knee jerk or dead cat bounce I mentioned Sunday night in Abe and Kuroda'a QE-Zilla Sends Japan in to a Triple Dipp Recession has taken place.
The USD/JPY retraced back to $117 overnight...
As for the Nikkei which closed higher by +2.18% after seeing a near -3% loss yesterday (-2.96%) on expectations of an Abe snap election announcement, it has put in the dead cat bounce mentioned Sunday night in the post above...
As I have been saying, it has been interesting watching the $USD negative divegrence build from 15 min charts out to 60 min and 4 hour/daily and now starting to move back in (the FAZ explanation and 3C concept).
As soon as I saw it, I suspected the Nikkei Crack Sunday night is the major market crack every indicator we have is pointing to while the SPX has been frozen in a 6-day 3 point closing trading range.
On a VERY short term basis, it looks like the USD/JPY is not done yet on 1 min intraday charts...
This divergence is supported by the 1 min $USDX which also has a positive divegrence even though overnight has not been kind to the currency basket.
However as the thrust of this update has been trying to push across, the long term strategic macro divergences (positive Yen, negative Dollar, negative NKD, negative US averages) is moving from the strategic to the tactical and closer every day.
For instance...
After a month or more of building out to 60 min charts as a negative divegrence then moving to 4 hour (see above) and even 1-day, the USD has started moving back to the shorter "Timing" charts while maintaining the MACRO divergences already in place, this is a 30 min chart of $USDX negative.
Pushing even further...
and finally back to the short term 5 min charts, a rare USD/JPY signal on a 5 min chart (usually these are only detailed enough for 1 min charts)....
It looks like we are within a day of not a correction in the market, but a bear market itself...
More throughout the day with likely position ideas.
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