Thursday, March 08, 2007

Japanese Yen Down, Stocks Up

Today the major indices were up across the board and the reason why stocks were up was because the Yen was down last night. The Yen is what is moving this market right now and that makes trading very difficult if you are someone who takes overnight positions.

In the past we've had many different catalysts which would move our market. Most of these catalyst can be monitored throughout the day. For example crude oil used to be what the market was focusing on. As oil rallied stocks would sell off, as oil sold off stocks would rally. Traders would watch oil during the day to help determine which way stocks might move. A few years back the yield on the ten year bond was what was driving our market. Right now it's the Japanese Yen that is moving our market and the reason why this makes trading difficult is because the yen makes most of its significant moves over night while our market is closed which means we wake up in the morning to find our stock market indicated up or down sharply. If you are someone who has overnight positions, these gaps can really hurt if you are on the wrong side so I caution you to be careful. Stock action is not what is dictating where our market is going. The Reits were the weakest group yesterday and were even downgraded before the open, but that didn't matter because the reits were the strongest group today! If you have a feel for what the Yen is going to do, then trading stocks will be that much easier.

Above is a chart of the dow and the Japanese Yen. As you can see both markets retraced close to one third of their recent move. I'd like to see the dow go just a little higher so that I can begin to look for an entry to short. This Fib zone should be the area where the dow puts in a top and the Yen puts in a bottom in my opinion. That's how I'm going to play this market. We'll see how things unfold.


el said...

this is the reason my SPY Puts got eroded WED->THU

even though the markets closed lower WED, the Yen fluctuated enough overnight to bounce THU premarket index futures...

just looking at refiners and what's left of the lenders right now.

Eric said...

its interesting how the market traders switch focus so easy. Now we are all watching the Nikkie and the Yen over night like you said.
the question i guess would be, how long will the market follow these?

chronictown said...

gold seems to be following the yen as well.the market sold off,however gold sold off as is no longer the safe haven trade when the market tanks.just one mans observation. good trading!

Leo said...

yeah.. the yen hot money plays gold and expensive metals too... when they leave... gold sold off too...

Leo said...

anyone has any idea where is those hot money gone when the market is sold off??

Paul said...


Your thoughts on next week? We are entering the most bullish week per month according to your previous chart.

Team Titanic said...

Interesting post. It seems as though our markets are very senstive to sudden and sharp moves in the yen. The yen and it's role in the carry trade suggest that we are at the mercy of speculative traders (ie hedge funds, hot money flows) at the moment.
It does not seem as though this bounce has institutional support, just spec money support, and it suggests that we have not seen the end of the selling.
Strength in the metal/industrial complex seems to be holding the markets up at the moment.

Kevin said...

Hi Paul,

I'm not a buyer next week. I'll post my reasons why this evening after the market closes. I just shorted the market today and I'm ready to short more next week if we move higher.


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