Scenario Planning

With futures continuing a sloppy overnight ascent on the heels of a low volume rally Friday, here are a couple scenarios for the near term.

The first one may explain the sloppy movement in the futures, and possibly the low volume too: a rising wedge to new highs (not the first time this market has hinted at one of these).

Rising wedge patterns can be a bit choppy and can conclude with an upthrust over the 1-3 trend line. But when they culminate, they rip to the downside. I love them.

On the other hand, even though I'm reasonably certain that the decline from 2019.26 is corrective, doubt has crept in that it's over. With E-mini volume on Friday 36% lower than Wednesday's sharp decline, the set up for scenario #2 is a larger correction.

First a close-in view:

More of a larger view:

Wave Y could extend much lower than 1850 if it wanted to, even all the way to 1550-1650. But at this point, it's better to play things step by step, day by day.

For now, scenario #1 is preferred. But if 1959.52 were to break today, this view could change quickly.

EURUSD has returned over 100 pips since Friday's fill but I would not want to see it below 1.25200 now.

Looks like I now have company regarding the Nikkei and the yen. Citi FX Technicals group just announced that they think the short yen trade is on borrowed time. I have long felt (after being an early yen short as far back as 2011) that a continuation of yen weakness (and corresponding Nikkei strength) would mean that Abenomics was a success. For the record, I'm betting against Prime Minister Abe and the BOJ.

Simply put, the yen is still a major carry currency. As fear creeps back into the global markets, the yen is likely to strengthen due to risk aversion.