Monday, March 17, 2008

Another Look At The Yen And How It Can Be Used To Trade Stocks

Today was a picture perfect example of what I've been writing about over the past few weeks.

Above is a 2 day 5 minute chart of the S&P and the Japanese Yen. Notice how the S&P made a new low for the day at 1:30 while the Yen did NOT make a new high for the day. This sets up a buy signal because the new low for the day in stocks was NOT confirmed by the Yen making new highs. Notice how stocks rallied after 1:30 with the S&P breaking high.

The Japanese Yen has been a very useful market to watch if you are trading stocks. The key is to wait for some kind of divergence to take place between the two markets and then maybe consider making a trade.

Will this relationship between stocks and the Japanese Yen work forever? Of course not, but while it is working I strongly recommend paying attention to the Yen and combining it with other trading tools that you are using. Markets are constantly changing and as a trader we must adapt and change with the market. If the Yen is giving us an edge at the moment, why not use it. Anyway, I think I've said enough..I hope this helps.


Jesse said...


On your chart of the week you show copper breaking out of a symmetrical triangle. How far back into the triangle does the price have to fall for you to consider it to be a false breakout, or the breakout not valid? Planning any trades in copper? Thanks

Kevin said...

Hi Jesse,

Maybe I should change the heading for that chart to read False Breakout Of The Week...

Usually a move below the center of the triangle is enough for me to throw in the towel and exit the trade. In the case of copper, a move below 340 would be where I would exit a long position if I had one.

Anonymous said...

Don't look now, but your USD/JPY correlation may flip flop

rapid increase in USD could cause rapid decline in commodities

the latter could cause broad sell off in energy stocks and affect 25% of SnP

last Wed is a perfect example

you need to explain this to your readers

Kevin said...

Nothing to explain...if the correlation between stocks and the Yen falls apart, it will be obvious on the charts...If and when that happens, I will post some comments. Thanks


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