Daily Plan 8.9.24

Before we get into what is driving the market, we need to understand, atleast at a basic level, which prices are expected. And which prices are unexpected- this is very important concept to wrap your head around in active trading.

Now we know that 5200-5250 price bounce is expected. This is not new to our readers. We shared this 2 weeks ago that if this price level is tested, I expect some sort of strong bounce here, and that is exactly what we are seeing. So it is expected.

Now what is not expected? Is 5360, where this market trading at the moment, not expected? I think it is very much expected. Now along the way, we encounter some prices such as 5192 or that 5306- these are ALL important goal posts which keep us focussed on where the market is trying to go in the short term.

Now as far as what is driving these markets, what did we say about USDJPY?

What is the correlation that is going on between SPX and the USDJPY? It has been directly correlated to the stocks. Look at the weekly auction below in USDJPY.

See a pattern now? Indeed.

Now going back to my point about the expected versus unexpected prices, the issue I see here is again the USDJPY running into this 150 handle. BOJ has worked really hard to bring USDJPY down to reality and someone in Tokyo is not going to be very happy with these moves if it begins taking hold above 150. At the same time, you have BOJ under pressure to keep inflation lower- Japanese culture and population is older and is extremely sensitive to any inflation at all. We are talking 2% inflation which is extremely bad from a Japanese culture point of view. Now this is why the BOJ has to keep pressure on USDJPY, stocks be a nth priority. On the US side however, the FED is going to be more sensitive to employment situation and has to cut. So this is naturally bound to put pressure on USDJPY in coming days and weeks - but at some point I think the carry trade will unwind and this correlation will not matter this much any longer. That may not be today, or tomorrow. It still matters today. And tomorrow.

Now as far as tomorrow goes, I am not interested in all prices. Ok we trade 5466, we trade 5347- big deal. These are not key levels for me. Most of the prices tend to be noise with few levels here and there where large traders are interested. This for me tomorrow comes down to 5322-5323 area. We are now trading 5360 at time of this post.

Today was an 180 point up day. That is extremely impressive. However, at end of the day, I am more interested in levels like 5130, 5200 etc rather than be jumping up and down with joy here so close to that 5400. I hope you can see my point here- if one is bullish here at 5400, let them be. What were they doing at 5200?

As a bull, I need to see tomorrow pass and we stay above 5323. I like to see Monday trading not do much activity below 5323- these type of auctions show that this move has legs. One session does not prove anything from my perspective. Since I am not a chart trader, I cannot give you my view on head and shoulders and triangles and wedgies and so on.

I can only offer my thought process based on principles of auction markets. And based on that I like to see some balancing here above 5323 which tells me this is solid base to launch higher from. In that sense, I think the move up until 5323 was solid and we can say that there is some fluff that needs to be validated for that last 2 hours of trading between 5323 and 5360. Now it is common knowledge that in last 4 weeks a lot of damage has occurred to the technical structure of these mega caps. That is an obvious thing and does not need to be stated and restated by me- you can read up on your Twitter feed from 100s of others. However that is also in past tense now - you can’t keep on using that to justify remaining bearish if we are not going to dip lower below 5300s now.

With this out of the way, I will keep my eyes on that 5323 tomorrow.

Scenario 1: A test and quick rejection and 5323 is healthy for bulls and could target 5360-5365 area again.

Scenario 2: The bulls do not want to see this market linger at or below 5323 which could target 5290 on the session.

In related markets, Dollar has remained a dud but USDJPY has risen with whatever may be going on between Yen and its Central Bank. VIX has eased off but VIX is still at 22. Three weeks ago it was at 12!

For me to call all clear to bulls, we will have to see a couple of sessions close here above 5330. Now the plus for bulls is that action in Oil- it shows some elements of demand in the system but then Oil could also have some other reasons to rally - Geopolitics being obvious one but also politics here locally in the US. So I will not read much into it as a strong support indicator for the Bulls. Bitcoin? Well it was going up before also when SPX was getting smashed. So what you gonna read into that? Nothing.

~ toc

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