Wednesday, March 28, 2007

Japanese Yen Could Be A Problem For Stocks



One of the reasons why I was bearish on the stock market two weeks ago was because of the Yen. I was anticipating the yen to pullback to the fib retracement zone and then resume it's uptrend.

As for stocks, I was looking for the same thing but in the opposite direction. I was looking to short a bounce into the fib zone last week. Unfortunately for me, the bounce was so strong that I had no choice but to exit my shorts at a loss.

As far as where I see stocks headed it's a tough call. I was leaning towards the upside after last week's strong bounce, but looking at the Yen chart today makes me think stocks could come under pressure here.

The Yen has broken above its 3 week downtrend line and appears to be heading higher. If that happens, you're going to see stocks react by moving lower.

Keep an eye on the low from March 21st in the stock market. I think a lot of people got long that day and if we see stocks break below that day's low, we may see some significant selling. In fact, I might even consider shorting some Q's at that point. I have no position in the SPY, QQQQ or DIA at the moment. Is this a tough market or is it just me?

7 comments:

dps said...

Kevin, I should probably know this - but what moves first - the Yen or the US market?

Thanks!

Kevin said...

I would think the Yen.. The Yen moved higher last night and the US markets gapped lower today.

dps said...

That's good to know...I'll be on the lookout...

JS said...

What do u define as the Q's breaking the lows of 3/21- should it close below 3/21 or does it merely have to go below 3/21 on an intraday basis?

Kevin said...

a break below intraday

Sandro said...

I think there is a lot of computer trading involved in carry trade, which means computers will automatically trade any divergence between Y and stocks in the direction to synchronize them back.

So who's first, who's second - can differ day to day.

Chris said...

It's tough...very tough. I was up 10% at the end of January and my account hasn't made any headway since.

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