Tuesday, March 04, 2008

Watch The Yen If You Want To know What Stocks Are Going To do.



Today I'd like to share with you something that I've been using in my own personal trading.

Above is a daily chart of the S&P500 and in the lower pane is the Japanese Yen. If you look closely at the above chart, you'll notice the inverse relationship between stocks and the Yen. If the Yen is trending higher, chances are stocks will be moving lower. If the Yen is trending lower, chances are stocks will be moving higher.

All of the above turning points in the S&P coincided with turning points in the Yen which means the Japanese Yen can be used to confirm trend changes in the stock market. Sometimes the Yen will turn slightly before stocks do which gives us some insight as to what stocks might be doing ahead of time. In the above chart I marked off 2 examples where the Yen changed its trend a few weeks before the S&P did.

Below is 5 minute intraday chart of the S&P and Japanese Yen over the past 3 days. You'll notice the exact same relationship as the daily chart which we just looked at. You can see that even on an intraday timeframe, the Japanese Yen moves inversely to the stock market and can even lead the stock market at turning points.

In my opinion I feel the Japanese Yen is a very good market to follow if you are trading stocks. I think I proved my point to all of you with the 2 charts I just I posted...Good Luck and I hope I've given you all something of value.

9 comments:

Anonymous said...

Wow! interesting stuff.

Thanks Kevin

Dr. Duru said...

Is this the carry trade still in action?

Mr. Monopoly said...

Good post, Kevin. You can watch this 24/7 and simultaneously get rid of the inversion by watching USDJPY in the Forex market.
http://tinyurl.com/2pah8p

Anonymous said...

Kevin,

Excellent post. Thanks for the insight. Aren't we seeing the same inverse relationship between the $USD and the Yen? As the value of the dollar fluctuates, dollar denominated stocks follow suit? Maybe both $SPX and the Yen are following the movement in the dollar?

Anonymous said...

yes, this the de-leveraging of the yen carry trade. i believe the inverse relationship has been in affect just recently, like about a year??? anyone can confirm?

Jimmy

moo said...

The yen broke through January's high several days ago. Given the negative correlation, one would have expected the S&P to have done the opposite - make a new low, but it didn't. Lately I'm nervous using this signal to trade and have abandoned it.

Take a look at this:
http://tinyurl.com/ywszsc

Would love to see a response from you on this one Kevin.

Many thx for your blog.

Ben Bittrolff said...

Thats exactly what I've been saying for months.

The Yen As A Leading Indicator

Ben Bittrolff said...

Thats exactly what I've been saying for months.

The Yen As A Leading Indicator

Anonymous said...

this is not exactly true..there is a correlation , no doubt. But intra day, the movement of yen doesn't precede the stock movement..at times, as i observed, it was other way around.
be careful out there

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