Saturday, December 7, 2013

XJY Japanese Yen Daily Chart Positive Divergence

72 years ago today the Japanese pilots yell "Tora! Tora! Tora!" attacking the U.S. Navy fleet at Pearl Harbor.  Over the last year, the BOJ yells "Banzai!!" by beating the yen lower to create artificial heights in Japan and U.S. stock markets--a different type attack. The sugar high from all the free and easy central banker money can throw one heck of a party, but the party always ends. Japan is a great best friend to the U.S. and are great people. Like America and all other nations, the people have to put up with the hair-brained decisions of incompetent leaders. The reason for the healthy stock market during November is plain as day on the chart. Note the drop in yen from the October high down to the current lows. The BOJ is printing money like madmen, even worse than the Fed, bludgeoning the yen, to send the Nikkei, and U.S. stock markets higher. The Japan automobile manufacturers and other export industries benefit from the weaker yen. That drop in yen caused the dollar/yen currency pair to poke above 100, then 101, 102, then 103. Banzai!!

The green arrow on the left shows the first positive divergence bounce but note that the RSI had a lower low and wanted to see the yen come back down for another test of the price low, which occurs on Friday. The red candlestick on the right shows the beating of the yen, -1.1%, corresponding to the +1.1% pop in the U.S. stock markets. Funny how that happens. Very simply, if this chart goes down, the stock market goes up, and visa versa. Price is printing a matching low and the indicators are all positively diverged so another bounce should occur from the green circle. Typically, possie d forms with a lower low in price, hence the yen may print in the green circle before receiving the bounce. Watch the upper green trend line since that will be bullish for yen (bearish for the stock market) if price moves up through.

The blue dots show how when price violates the outside standard deviation band, it needs to move back to the middle band, at a minimum, and more often than not the opposite band. Price is skidding down the lower band over the last few weeks so a move back to the middle band is needed, at a minimum. This would target the 98-99 area. Projection is a stronger yen moving forward but overall, a sideways pattern will likely form for the longer term. The stronger move in the yen will send the dollar/yen lower as well as the NIKK and U.S. equities. The DXJ will move lower with the NIKK once the yen begins strengthening. Early in the new week the anticipation would be that the yen strengthens from the green circle reinitiating a sell off in equities. If long DXJ, and you see the yen weakening on Monday with the dollar/yen running higher, it would likely be prudent so sell DXJ on the bounce and 'git outta Dodge, while the gittin' is good'. Say hello to a vet on this Pearl Harbor Remembrance Day. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

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