Many pundits have claimed that a "growth scare" is the reason for the recent decline. The real risk is much bigger, and much more systemic - the Yen carry trade. The Yen carry trade has massive implications into global financial markets and a partial unwind caused a massive swoon last August. Currently the market is trading in almost perfect lockstep with the USD/JPY which means our fate is tied to the to the Forex market.
Recently the key level of 152 was broken on the USD/JPY which coincided fairly well with the recent decline in the S&P 500 and NDX.
On Feb 20th, I predicted that this would be an issue and that traders should immediately take action to hedge or de-risk -
The SPX shed 100pts the following day and has since dropped 300pts from the high on 2/19. That said, I believe the risk here in the short term is to the upside. USD/JPY is showing a solid RSI divergence on the daily and has yet to back test the 152 handle.
The SPX is also showing some signs of short term seller exhaustion -
The risk here is that if this next bounce is sold into the coming path could look grim going into the March monthly and quarterly opex. As mentioned many times over the last week, dealers are not coming to save this market as enough damage has been done early enough in the opex cycle that volatility and decay flows are not a factor right now.
The chart above shows a possible path for the SPX should 152 get rejected. A retest of the previous all time high at 565 lines up well with a broadening trendline on the daily timeframe. This would be a decline of about 8% or so which would take us down into the end of the quarter. To avert this, USD/JPY needs to reclaim 152 with some conviction in order to re-establish bull control and provide a tail wind for stocks. 🔐For access to premium trading content including swing trade alerts & live day trading room visit 👉 - https://www.carnivoretrades.com/
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