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.