29 days 11 hrs 55 min to a 83% probability Fed hike; post-CNY update

How time flies. Now for a post-CNY/Lunar New Year/Spring Festival roundup.


FOMC rate hike odds in March

According to the CME Fedwatch, probability of a 25 basis point rate hike in March ’18 by the Federal Reserve crept up 3% compared to our last check on 01 February. At this moment, probability of a hike in March stands at 83.1% followed by another hike in June at 62.1% chance. This table below places the chance of a third hike at less than 50%.

Screencap of CME Fedwatch tool taken on 20 Feb 2018

CME Fedwatch Tool screenshot taken on 20 February 2018 | Source: CME Fedwatch


JP225 and SG30 performance

In this post ‘One drop all drop contagion in a high correlated global village‘ I observed that markets that appear different to laymen are highly correlated. Such as SiMSCI, Nikkei 225 and AUDJPY.

JP225 - SG30 - AUDJPY overlay

JP225 – SG30 – AUDJPY overlay posted on 09 Feb 2018 | Source Tradingview.com

For now, an update of the same overlay appears to disagree with “one drop all drop” for the time being.

JP225 - SG30 - AUDJPY overlay captured on 20 Feb 2018

JP225 – SG30 – AUDJPY overlay captured on 20 Feb 2018

A few things to note from this chart:

  • JP225 and SG30 has rebounded rather steeply leaving AUDJPY little changed. This is a divergence. This divergence is not unusual. I personally feel that stocks have been irrationally exuberant over the past 2 years so typically they should be quick to recover using any reason or excuse. The implications of a divergence here? Either AUDJPY will follow stocks with a rebound shortly OR JP225 and SG30 will experience another quick correction. In any case, I have faith in their positive correlation so convergence over long term should not be a surprise.
  • Close inspection suggests that JP225 and AUDJPY have a tighter fit up to September 2017. If we do a new overlay with SG30 out of the picture, then JP225 diverged a lot with it’s rally since September. Should there be a convergence in favour of AUDJPY, this chart suggests JP225 has quite a lot of room to close/fall. Note also with a lower high (LH) now in the picture, JP225 did in fact print a bearish trend reversal pattern.
JP225 - AUDJPY overlay; SG30 removed

JP225 – AUDJPY overlay; SG30 removed

  • SG30 fell by 9.03% between it’s high on 23 Jan and it’s low on 09 Feb. Over the same period, JP225 fell 15% while AUDJPY fell under 6%. Clearly Nikkei was the more exuberant market but revealed to be the weaker one in this down leg.
  • Take note of level 399 for SiMSCI. In ‘SiMSCI the 6th element; there IS a change in the market‘, I wrote that

In my opinion, the market is in a runaway bubble mode. True or not I don’t know. If this is truly a bubble however, something super amazing will happen – SiMSCI will rally back up by nobody business and it will go back to/near that all-time high at the green zone. (Many bulls who were stopped out this and last week would have suffered for nothing while bears who short equally get killed.) If it is not a bubble, a more rational market will surely give that major top at 399 a good test and probably fail.

Give special attention to 399 in the last sentence. Coincidentally or not, since it’s correction SG30’s highest printed level was 399.30 yesterday. There’s that 399 number again. What kind of major top is 399? Note this post on 05 Feb ‘5 technical features in this SiMSCI chart‘.

There is a former resistance at 399. Note that this is 2015- high and a major top. From this top in 2015, SiMSCI fell over 29% to a low of 280-281 in February 2016. The fact that SiMSCI is now back below this level should be some concern. It could become a strong resistance.

Follow my report on AUDJPY ‘Elements of a high probability reversal setup appear in AUDJPY‘.

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