The SPX (S&P 500; the United States stock market) peaked on 7/16/24 printing the all-time record high at 5670 and fell to a low of 5119 yesterday. That is a drop of 551 points, -9.7%, in only 15 days. 10% of the US stock market value was wiped out in 3 weeks.
Better yet, the SPX tagged 5566 on 8/1/24 (last Thursday) and in only 3 trading days fell to 5119 a drop of 447 points, a -8.0% crash. Ouchie. And over the last month, the television talking heads told Joe Sixpack to buy, buy, buy! Sucka's.
The yen carry trade unwind is receiving much of the blame for the global stock market crash. It is funny. Usually everyone blames, "Those d*mn speculators!" so the yen takes the blame this time. The BOJ raised rates strengthening the yen creating turmoil in global markets. The weaker yen has provided easy money, to make more money, for a decade and more; a funding currency. Everybody and his bro was in the trade and the blue circle shows the start of the dramatic unwind. The yen strengthens, catapulting higher to the moon wreaking havoc in global stock markets.
If you think back to math class in school, you remember that a fraction has a numerator (top number) and denominator (bottom number). The dollar/yen currency pair moves lower, in conjunction with the US stock market, as the yen, in the denominator, strengthens (and visa versa; the dollar/yen will move higher if the yen weakens, like the last decade plus).
Thus, stronger yen (FXY) means lower dollar/yen pair (USDJPY) and lower US stocks. A weaker yen means higher dollar/yen pair and higher stocks.
The yen placed a bottom with the falling green wedge (bullish), oversold conditions and universal positive divergence. It was on the launch pad and ready to explode higher to the moon and voila; there is liftoff. The MACD line was a bit hesitant at the bottom (tiny red line) allowing yen to slump over for a few days to print a matching low and the MACD went possie d and the fuse was lit; the countdown started. Ground Control to Major Tom.
The yen climbs up the top standard deviation line so it is obviously a parabolic move out of control. Looking at the daily chart, there remains upside momo in the histogram, stocastics and money flow. Ditto the RSI but it is topped-out and will likely only move down. The overbot RSI, stoch's and money flow want the yen to pull back for a rest, also the neggie d on the stochastics over the last 2 days. A bit more upside in yen on the daily basis means a bit more pain for US stocks.
On the weekly chart, same dealio. Yen rocket launches from the falling green wedge, oversold conditions and possie d. The yen jumps out of its skin above the top standard deviation line. Traders were desperate to git outta Dodge. Price goes parabolic receiving the positive divergence rocket launch and upside momo remains in force. The stochastics are overbot and the money flow is neggie d over the last 2 weeks which want the yen to take a rest and pullback but the other indicators are long and strong wanting higher yen going forward on the weekly basis. That means pain ahead for US stocks on the weekly basis.
The interesting thing about all this mumbo-jumbo is that the bottom can likely be called in US stocks when the yen tops-out. Trading is playing multi-dimensional chess where the time frames are the dimensions. You have to mesh the time frames together to weave a forecasting story going forward. Yen likely needs a couple days or so to top out in the daily time frame. Simply watch the daily chart and you can call the top. The yen will then take a rest in the daily time frame for a few days or week or so, but then re-strengthen again since the weekly chart exhibits long and strong indicators that still have fuel in their tanks to send price higher.
The 66 level is key price S/R so the yen may target that as the goal in the weekly time frame. The gap at 63-64 is big enough to drive a truck through so that will need filled at some point forward. The weekly chart may top-out in a couple-three weeks; simply watch the chart develop and you will be able to call the top in the weekly time frame. That will signal the bottom in US stocks. So it looks like there is at least a couple more weeks of selling in US stocks where the SPX should make a new low.
JP Morgan says about one-half to 60% of the carry unwind is complete which means they expect the yen to strengthen more which will create softness in US stocks.
The VIX, the so-called fear gauge, shot higher to 65 about 24 hours ago and remains above 30 so that means big wild price moves are on tap intraday and day to day in the stock market. For example, the SPX may run 60 points higher, then collapse 80 points, then maybe finish the day higher by 50 points, then the next morning open down a 100 points, rinse and repeat. You get the idea. Have fun.
Keystone is not holding any trades on the yen long or short but holds index shorts. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
Note Added Wednesday Morning, 8/7/24, at 3:21 AM EST: The BOJ intervenes verbally to stop the yen strengthening. The BOJ proclaims that rates will not be hiked when the markets are unstable. Happy Days Are Here Again. The dollar/yen pair pops over 2% above 147 (weaker yen) sending US stocks to the moon with S&P futures up +61. Don't you love the corrupt Western casino? As the dollar/yen goes, so goes the US stock market. As the yen goes, the US stock market goes inversely. Remember, a weaker yen, in the denominator of the dollar/yen currency pair, sends the dollar/yen pair, or ratio, higher and US stocks higher. A stronger yen, which occurs when the BOJ hikes rates (after a multi-year lull), sends the dollar/yen lower (a bigger number in the denominator) which sends US stocks lower. As the dollar/yen pair moved lower from 145 to 142, US stocks sold off, and now as the dollar/yen pops higher to 147, traders are buying US stocks with both fists. Shiny Happy People with Katie.
Note Added Wednesday Evening, 8/7/24, at 8:32 PM EST: The stock market was joyous this morning moving higher as the dollar/yen pair moved higher above 147. Alas, the dollar/yen rolled over lower (stronger yen) to 146.21 so stocks deteriorate into the closing bell and in the after hours. S&P futures are down from -15 to -35 this evening. The 2-10 spread is down to only -0.02%, or -2 bips, ready to dis-invert and likely welcome recession. As the dollar/yen goes, so goes the stock market.
Note Added Friday Morning, 8/9/24, at 2:56 AM EST: US stocks rally on the happy Jobless Claims number and stronger financials. Dollar/yen is above 147. JPM says the yen carry unwind is about 75% complete. If you study the yen chart versus the SPX you will see that the start of 2023 is when the inflection point occurs and the weaker yen from then to now sends US stocks to the moon. Pulling the numbers off the FXY chart, an educated guess says the carry trade started and gained steam from late 2022 and early 2023, that is a price level of 68 to 73. The FXY shot up to 65 now back to 63. Thus, from a price perspective, the yen has recovered about 80% and more but price is not volume. The carry trade unwind is likely one-half to three-quarters along as JPM states. It makes sense that FXY pulls back to 62-63 since that is strong price support especially from the October 2022 lows. Bank of New York Mellon says the yen carry trade has further to unwind for weeks and maybe months ahead. Macquarie says there are no signs of global contagion during the stock market crash but cautions that there may be vulnerabilities exposed in the coming days in hedge funds, private capital, crypto operations, etc.....
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