Wednesday, February 12, 2014

XJY Japanese Yen Daily Chart Upward-Sloping Channel Tweezer Top Fibonacci Retracements

The Fed and BOJ collude to keep the stock market elevated. The BOJ bludgeoned the yen last year to create the strong rallies in Japan and US stocks, as well as European stock and bond markets. The end of year stock market rally is plain to see from the chart as the yen was crushed from the October high to the low to begin the year. The weaker yen (higher dollar/yen currency pair) supplies the bull fuel. For this year, 95% plus of the Wall Street analysts and traders said continued weakness ahead for the yen (sub 95) so they remain long the Japan and US stock markets and short the yen. How's that working out so far? At least this 95% receives a happy reprieve the last few days.

As Keystone forecasted at the end of the year, the falling green wedge, oversold conditions and positive divergence said a launch higher should occur for the yen, opposite of what the group-think was, and it occurred as expected. The yen strength through January into February creates the market selling. The brown circle shows a tweezer top (two long shadows on the candlesticks that resemble a pair of tweezers) that printed to begin February. This is where the BOJ steps in to beat the yen lower to create the seeds for the recovery rally. If the BOJ prints yen the XJY chart above is moving lower (weaker yen and higher dollar/yen) and the stock market moves higher. If the BOJ refrains from money printing, the yen strengthens, the dollar/yen drops, and stocks drop.

The red lines show negative divergence creating the spank down from the tweezer top. Price also violated the upper standard deviation band (pink lines) so a move back to the middle band (20-day MA at 97.20) needs to occur at a minimum and potentially a move back to the lower band. Note the tight bands that squeezed out the strong upside move in mid-January. The MACD line is not agreeable to a top and wants to see higher highs for yen price. In addition, compare the indicators for the price high in October versus the high in February. The neon green lines show long and strong indicators but price only made it to 99 instead of back up to 103. This hints that there is underlying strength in the yen moving forward that would like to see the yen maintain upward buoyancy.

The Fibonacci retracements show that price has now touched the 32% Fib at 97.46, exactly on the dot. Thus, today is a bounce or die day. US stock futures are flatish at this writing less than one hour before the opening bell with dollar/yen at 102.30-ish; so this can be used as a pivot reference. Market bulls win today if dollar/yen moves above 102.30 and higher. Bears win at 102.30 and lower. Watch to see if the RSI and/or stochastics dip under 50% into bearish territory, or not (bearish for yen means bullish for the stock market). The 20 and 50-day MA's need back tested so some further softness in the yen is not unreasonable, however, stock prices may want to moderate lower today after the strong 4-day rally and that would be in concert with yen bouncing higher off the 32% Fib.

The negative slope of the 200-day MA is softening, perhaps flattening, indicating that the longer-term yen-weakening move is finishing. Overall, climbing out of the weeds and minutia of this price action, a sideways path forward through the year is a reasonable expectation. Note that the bottom rail of the channel coincides with the back tests of the moving averages and should provide a firm floor. A gap fill at 96 cannot be ruled out; if this happens the SPX will be at the 1850-ish all-time highs. There is also a gap fill at 97-ish that would be satisfied with a back kiss of the moving averages and test of the lower channel line. Simplifying all this mumbo jumbo, the yen may stutter step for a couple weeks, with a downward bias. This would keep the stock market stumbling sideways with an upward bias. The expectation is for the yen to then place a bottom again and continue sideways to sideways higher through the upward-sloping channel which would introduce further selling pressure on equities. Simply watch the dollar/yen as explained above since the BOJ and Fed control the markets. (Note: Yen chart is not updated for today's print as yet; it is always one day behind until this afternoon when the chart is updated). This information is or 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.

Note Added 6:03 AM on 2/13/14: XJY bounces off the 32% Fib to 97.55. At 4 AM, two hours ago, the dollar/yen slips under 102 to 101.93. Asian and European markets are weak overnight. S&P futures -9. Dow -70. Nasdaq -17. As usual, the falling dollar/yen (stronger yen) sends equities lower. BOJ's Kuroda must be sleeping. He will need to start beating the yen lower again with money printing to raise the dollar/yen and keep the stock market elevated.

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