The Worst Day Since 1987

Japan experienced a significant market downturn, with a 12% drop in the TOPIX market, the worst since 1987. Over three days, the market fell by 20%, a record since 1949. This drop followed the Bank of Japan’s decision to raise interest rates, causing the yen to surge and disrupting global “carry trade” practices. The reaction also negatively impacted major tech stocks and led to heightened market volatility, with the VIX rising sharply. The U.S. Fed, in contrast, held rates steady but faces calls for intervention due to a slowing economy. Analysts warn of an impending recession as the yield curve disinverts, indicating current economic downturns. Market indicators show strong bearish sentiment and potential for short-term rebounds due to oversold conditions.

S&P Topix Yen ($SJPD) Technical Analysis Daily Time Frame

The chart shows a significant downward trend in the S&P Topix Yen index, with a large drop in the price. The index has sharply fallen below both the 50-day moving average (2,491.81) and the 200-day moving average (2,306.09), indicating a strong bearish sentiment.

Key elements to note:

The price has plummeted from a high of 2,234.66 to a low of 1,939.17, closing at 1,957.77. This large drop, accompanied by high volume, suggests strong selling pressure.
The Relative Strength IndexIn the world of technical analysis, the Relative Strength Index (RSI) stands as a cornerstone tool for traders seeking insights into market momentum. Developed by J. Welles Wilder ... More (RSI) is at 16.58, well below the typical oversold threshold of 30. This indicates that the index is heavily oversold and may experience a short-term rebound, although it can remain oversold for extended periods in a strong downtrend.
The Stochastic RSIIn the realm of technical analysis, the Stochastic RSI (StochRSI) emerges as a powerful tool for traders seeking to navigate market dynamics with precision. Developed by Tushar S. ... More is at 0.000, which also signifies an extremely oversold condition, reinforcing the potential for a short-term rebound or consolidation.
The MACDThe MACD indicator is essentially a momentum indicator that shows the relationship between two different moving averages of price. The MACD is the difference between the 12-period ... More Oscillator shows a negative reading, with the MACD line at -73.60 and the signal line at -19.39. This further confirms the bearish momentum. The histogram is negative and widening, suggesting increasing downward momentum.

Time-Frame Signals:

3 months: Sell. The strong downward trend and negative momentum indicators suggest continued weakness in the near term.

6 months: Hold. Given the current oversold conditions indicated by both the RSI and Stochastic RSI, there may be a potential for a short-term rebound. However, the overall trend remains bearish.

12 months: Hold. The index may stabilize or attempt to recover in the longer term, but the current bearish indicators imply caution. Monitoring for any trend reversals or significant changes in momentum will be crucial.

S&P Topix Yen ($SJPD) Technical Analysis Weekly Time Frame

In the weekly time frame, the chart indicates significant technical signals. The price has experienced a sharp decline from a high of around 2,700 to the current level of 1,957.77, breaking below previous support levels. This suggests a potential bearish trend continuation.

Relative Strength Index (RSI): The RSI is currently at 28.88, indicating that the market is in oversold territory. This could suggest a potential for a short-term rebound or consolidation; however, oversold conditions can persist in strong downtrends.

Stochastic RSI: The Stochastic RSI is at 0.000, also indicating extreme oversold conditions. This aligns with the RSI and further supports the possibility of a short-term bounce or consolidation.

MACD Oscillator: The MACD line is below the signal line, with both moving downwards, indicating bearish momentum. The histogram shows increasing negative values, reinforcing the bearish outlook.

Time-Frame Signals:
1-year: Based on the current indicators, the trend appears bearish with strong momentum. The RSI and Stochastic RSI suggest potential for a short-term rebound, but the overall outlook remains bearish unless significant support is found and held.
2-year: The longer-term trend remains uncertain. If the bearish momentum continues, we could see further declines. However, oversold conditions could lead to periodic bounces or consolidations. Key support levels should be monitored for potential reversal signals.
3-year: Over a three-year period, the current downtrend might reverse if fundamental conditions improve or if technical indicators show sustained bullish signals. It’s crucial to watch for any formation of reversal patterns and the behavior of key support and resistance levels.

Past performance is not an indication of future results. This article should not be considered as investment advice. Always conduct your own research and consider consulting with a financial advisor before making any investment decisions. 🧡

The Yen’s Rapid Appreciation

Since the Bank of Japan’s rate hike, the yen, previously so devalued that a top Tokyo hotel room cost about $87 in July, has surged in value. This appreciation has disrupted the “carry trade,” a popular strategy where traders borrow in cheap yen to invest in high-yield assets like Big Tech stocks. The rising yen, coupled with negative reactions to Big Tech earnings, starting with Alphabet’s disappointing report on July 23rd, has severely impacted this lucrative trade. Additionally, Berkshire Hathaway’s announcement that it sold half of its significant Apple holdings has further destabilized the market, leading to a 5% drop in Apple shares and a 20% decline in the “Mag 7” stocks since their July 10th highs.

Japanese Yen Technical Analysis Daily Time Frame

The provided chart shows a comprehensive technical analysis of the Japanese Yen/US Dollar (JPY/USD) pair on a daily time frame.

First, examining the price action, the chart depicts a significant upward trend starting from mid-July, following a prolonged downtrend from February to June. This shift indicates a potential trend reversal.

The 50-day Moving Average (blue line) is positioned below the 200-day Moving Average (red line), suggesting a long-term bearish trend. However, the recent price spike has pushed the price above both moving averages, signaling potential bullish momentum.

Volume analysis shows a notable increase in trading volume coinciding with the recent price surge, which often confirms the strength of the upward move.

The Relative Strength Index (RSI) is at 88.92, indicating that the pair is currently in overbought territory. This could suggest a potential for a short-term pullback or consolidation period.

The On Balance VolumeThe On Balance Volume indicator (OBV) is a technical analysis tool used to measure the flow of money into and out of a security over a specified period of time. It is a cumulative ... More (OBV) is showing a downtrend, with a current value of -142,855. This discrepancy between price action and OBV could indicate that the recent price move is not strongly supported by volume, hinting at potential weakness in the rally.

The Stochastic RSI is at its maximum value of 1.000, further confirming the overbought condition.

The Chaikin OscillatorNamed after its creator Marc Chaikin, the Chaikin Oscillator stands as a formidable tool in the arsenal of technical analysts. This oscillator is designed to measure the accumulati... More has a value of 2,118, indicating strong accumulation and buying pressure.

The MACD Oscillator shows a bullish crossover with the MACD line at 0.0001681 above the signal line at 0.0001099, and a positive histogram value of 0.0000583. This suggests bullish momentum is currently strong.

Time-Frame Signals:
3 months: Hold. The current uptrend indicates potential for continued gains, but overbought conditions suggest caution.
6 months: Buy. If the price maintains above both moving averages and volume supports the move, a medium-term bullish outlook is likely.
12 months: Hold. The long-term bearish trend indicated by the moving averages needs confirmation of reversal before a long-term buy signal. Monitor for sustained bullish momentum and changes in fundamental factors.

Japanese Yen Technical Analysis Weekly Time Frame

The provided chart shows a comprehensive technical analysis of the Japanese Yen/US Dollar (JPY/USD) pair on a weekly time frame.

First, examining the price action, the chart depicts a significant downtrend from late 2021 to mid-2023. Recently, there has been a notable price spike indicating a potential trend reversal or strong bullish correction.

The Anchored Volume Weighted Average Price (VWAP) from September 2022 shows the current price approaching this level, which may act as resistance.

Volume analysis shows a slight increase in trading volume, indicating growing interest in the pair, but it is not exceptionally high to confirm a strong bullish move.

The Relative Strength Index (RSI) is at 69.45, nearing overbought territory but not yet extreme. This suggests there might be room for further upward movement before a potential pullback.

The On Balance Volume (OBV) is showing a downtrend, with a current value of -198,334. This suggests that despite the recent price rise, the volume does not fully support the bullish move, indicating potential underlying weakness.

The Stochastic RSI is at its maximum value of 1.000, confirming the overbought condition.

The Chaikin Oscillator has a value of 806, indicating some accumulation but not as strong as seen on the daily chart.

The MACD Oscillator shows a bullish crossover with the MACD line at 0.0000758 above the signal line at -0.0000743, and a positive histogram value of 0.0001501. This suggests the beginning of a potential bullish phase.

Time-Frame Signals:
1 year: Hold. The current price action shows potential for further gains, but the bearish long-term trend and overbought indicators suggest caution.
2 years: Hold. Monitor for sustained bullish momentum and confirmation of trend reversal. The pair needs to break above the anchored VWAP and show consistent volume support.
3 years: Sell. Given the long-term downtrend and significant resistance levels, a long-term bullish outlook is uncertain without clear trend reversal signals.

Past performance is not an indication of future results. This article should not be considered as investment advice. Always conduct your own research and consider consulting with a financial advisor before making any investment decisions. 🧡

Market Panic and the VIX Surge

The rapid market downturn has caused a spike in the market’s volatility index, the VIX, which soared from under 12 a month ago to 65 this morning. This surge in volatility, combined with the swift decline in bond yields, has triggered calls for immediate intervention from the Federal Reserve. Fed official Austan Goolsbee has indicated that if the economy continues to deteriorate—compounded by a weaker jobs report last Friday—the Fed is prepared to “fix it.” This scenario could lead to a significant rate cut, possibly a 75-basis-point “catch up” cut in September, mirroring the Fed’s first substantial rate hike in June 2022.

Ipath.B S&P 500 VIX Short-Term Futures ETN (VXX) Technical Analysis Daily Time Frame

The chart shows the daily performance of the iPath B S&P 500 VIX Short-Term Futures ETN (VXX) as of August 5, 2024.

Trend Identification:
The price has been in a consistent downtrend from mid-February to mid-July, shown by lower lows and lower highs. Recently, there has been a significant upward spike, breaking above both the 50-day moving average (46.71) and the 200-day moving average (60.02). This move is accompanied by a large increase in volume, indicating strong buying interest.

Key Levels:
Support: Around 46.71 (50-day moving average) and 50, where the price consolidated before the recent spike.
Resistance: Around 81.39 (current high) and 94.52 (recent intraday high).

Technical Indicators:
Volume: The volume has significantly increased, peaking at 1.404 million, suggesting strong buying pressure.
Relative Strength Index (RSI): The RSI is at 86.70, indicating the stock is in overbought territory.
On Balance Volume (OBV): The OBV has increased, reflecting accumulation and confirming the upward price movement.
Stochastic RSI: The Stochastic RSI is at 1.000, indicating extreme overbought conditions.
Chaikin Oscillator: The Chaikin Oscillator is rising, indicating positive momentum.
MACD: The MACD line is at 4.95, well above the signal line at 3.16, suggesting a strong bullish trend.

Time-Frame Signals:
3 Months: Given the recent strong upward movement and high volume, the stock is likely to see continued volatility. The overbought indicators suggest a potential short-term pullback, but the overall trend appears bullish. Recommendation: Hold.

6 Months: The breakout above the moving averages and strong volume suggests a shift in trend. If the price can maintain above the 50-day and 200-day moving averages, it may continue to rise. Watch for consolidation above these levels. Recommendation: Buy.

12 Months: Assuming the stock maintains its upward trajectory and the broader market conditions remain favorable, the long-term outlook is bullish. However, be cautious of potential volatility given the VIX’s nature. Recommendation: Buy.

Overall, the recent price action suggests a significant shift in sentiment with strong bullish signals, but short-term caution is advised due to overbought conditions.

Ipath.B S&P 500 VIX Short-Term Futures ETN (VXX) Technical Analysis Weekly Time Frame

The chart shows the weekly performance of the iPath B S&P 500 VIX Short-Term Futures ETN (VXX) as of August 5, 2024.

Trend Identification:
The price has been in a consistent downtrend since mid-2021, indicated by lower lows and lower highs. Recently, there has been a notable upward spike, pushing the price above the anchored VWAP from September 29, 2022, which is currently at 83.78. This indicates a potential change in trend, especially considering the significant volume increase.

Key Levels:
Support: Around 74.01 (recent low) and 83.78 (anchored VWAP level).
Resistance: Around 100 and 120 (psychological and previous highs).

Technical Indicators:
Volume: There has been a substantial increase in volume, peaking at 1.96 million, indicating strong buying interest.
On Balance Volume (OBV): The OBV has risen sharply, reflecting accumulation and supporting the recent price increase.

Time-Frame Signals:
1 Year: The recent break above the anchored VWAP and significant volume increase suggests potential for a continued upward move. However, given the long-term downtrend, cautious optimism is advised. Recommendation: Hold.

2 Years: If the stock can maintain above the support levels and the current upward momentum persists, there is potential for a more sustained upward trend. Watch for consolidation above key support levels. Recommendation: Buy.

3 Years: Over the longer term, if the stock sustains its upward trajectory and the market conditions remain favorable, there is potential for continued growth. However, the inherent volatility of the VIX should be considered. Recommendation: Buy.

Past performance is not an indication of future results. This article should not be considered as investment advice. Always conduct your own research and consider consulting with a financial advisor before making any investment decisions. 🧡

The Bank of Japan’s Impact and Slowing U.S. Economy

The Bank of Japan’s rate hike, coinciding with slowing U.S. economic data, has thrown global markets into disarray. Analysts such as Nancy Lazar and Michael Kantrowitz from Piper Sandler, and Michael Darda, have long warned that the effects of Fed hikes would take hold after about a two-year lag, validating the yield curve’s recession warning.

The Misleading Yield Curve Disinversion

While the yield curve’s disinversion might initially seem positive, it typically signals the onset of a recession. The inversion, where long-term yields fall below short-term yields, predicts an impending recession. Disinversion, characterized by plunging short-term yields, often indicates that the recession has arrived. The two-year yield, which was over 5% at the end of April, has now dropped to 3.8%, reflecting market expectations of further Fed rate cutsWhen the Fed cuts rates, it reduces the cost of borrowing for consumers and businesses, which can stimulate spending and investment. Fed rate cuts also have consequences that affec... More and a slowing economy. This pattern supports warnings from analysts like Michael Hartnett at Bank of America, who advises caution and suggests that investors “sell the first cut.”

Insights

1. Japan’s market saw its worst drop since 1987 due to a rate hike.
2. Yen appreciation disrupted global trading strategies.
3. U.S. market volatility spiked, signaling economic distress.
4. Analysts foresee a recession as yield curves disinvert.

The Essence (80/20)

Core Topics:

• Market Reaction to Rate Hike: Japan’s TOPIX market plunged due to the Bank of Japan’s unexpected rate hike, highlighting the delicate balance of monetary policies.
• Impact on Global Trade: The yen’s rise disrupted the carry trade, causing ripples in global markets, particularly affecting major tech stocks.
• Volatility and Recession Signals: The surge in the VIX and disinversion of the yield curve indicate market fear and potential recession, prompting discussions of necessary Fed interventions.

Detailed Descriptions:

1. Market Reaction: The Bank of Japan’s decision to raise rates resulted in a severe drop in the TOPIX market, showing how sensitive markets are to policy changes.
2. Global Trade Impact: The strengthening yen disrupted global financial practices like the carry trade, leading to significant losses in tech stocks and increased market instability.
3. Economic Indicators: Rising market volatility (VIX) and the yield curve disinversion suggest an impending recession, underlining the interconnectedness of global economic policies.

The Guerilla Stock Trading Action Plan

Prepare for Recession: Implement strategies to safeguard assets against potential economic downturns, such as shifting to more stable investments.

Monitor Policy Changes: Stay updated on central bank decisions, as these can have immediate and significant market impacts.

Diversify Investments: Given the volatility, diversify portfolios to mitigate risks associated with specific market segments.

Analyze Economic Indicators: Pay close attention to indicators like the VIX and yield curve movements to anticipate market trends and adjust strategies accordingly.

Looking Ahead

The financial turmoil originating in Japan has quickly spread across global markets, exacerbated by the Bank of Japan’s rate hike and compounded by a slowing U.S. economy. The sharp appreciation of the yen has disrupted lucrative trading strategies, while negative reactions to Big Tech earnings and significant stock sell-offs have further fueled market panic. As volatility soars and bond yields plummet, calls for immediate Fed intervention grow louder, with potential rate cuts on the horizon. The current disinversion of the yield curve underscores the looming economic downturn, highlighting the critical need for strategic responses to navigate these turbulent times.

Market Turmoil FAQ

1. What happened in the Japanese market recently?

The TOPIX market in Japan experienced a 12% plunge, marking the worst day since the 1987 crash. Over three days, it dropped by 20%, the worst on record since 1949.

2. Why did the Japanese market experience such a significant drop?

The drop is attributed to the Bank of Japan’s decision to hike interest rates, which negatively impacted the market.

3. How has the yen’s value changed recently?

Since the rate hike, the yen has significantly increased in value, disrupting the “carry trade” where traders borrow in cheap yen to invest in momentum plays like Big Tech.

4. What impact did Berkshire’s actions have on the market?

News that Berkshire sold half of its Apple position contributed to the market decline, with Apple shares dropping 5% and the “Mag 7” falling 20% from their July highs.

5. What is the VIX and how has it reacted to recent market events?

The VIX, a volatility index, soared from under 12 a month ago to 65, indicating significant market panic and fear.

6. What actions might the Federal Reserve take in response to the market conditions?

The Fed might consider a significant rate cut, possibly a 75-basis-point cut in September, to address the deteriorating economic conditions.

7. How are recent Fed hikes affecting the market?

Recent Fed hikes are taking effect with a lag, contributing to the current market downturn as predicted by several analysts.

8. What does the disinversion of the yield curve indicate?

Disinversion of the yield curve typically indicates that a recession is imminent, as short-term yields start to plunge, reflecting a slowing economy.

9. How have bond yields changed recently?

The two-year yield has dropped from over 5% at the end of April to 3.8%, as the market anticipates more Fed cuts and a slowing economy.

10. What do analysts recommend in response to the first Fed rate cut?

Analysts like Michael Hartnett at Bank of America suggest selling assets during the first rate cut, as it often precedes further economic slowdown.