XJY Japanese Yen Daily Chart

The Fed and BOJ control the stock market as illustrated in many ways at this site over the last few months. The main driver of the higher stock market is the weaker yen. Weaker yen = higher dollar/yen = higher stock market. Stronger yen = lower dollar/yen = lower stock market. The BOJ's monetary policies weaken the yen just like the Fed's policies weaken the dollar. This liquidity pumps the stock market higher so the rich become richer.

The bottom was called in the yen at the end of December due to the falling wedge, oversold conditions and positive divergence, and the bounce occurred as expected. The stronger yen creates the equity selling in January. Remember, 95% plus of the analysts and traders on Wall Street called for a continued drop in the yen sub 95. What does that tell you? Price is moving up through an expansion pattern. The Nikkei dropped overnight and futures are weak this morning due to the dollar/yen dropping (yen moving higher). The chart is not yet updated for today's print. It will be at the brown line at 98-ish trying to create a matching or higher high as the long and strong MACD line desires.

The indicators are negatively diverging so this up move in the yen should stall and allow the stock market bulls to run a few days. The RSI is not yet overbot but the yen may pull back before the overbot conditions occur. If the RSI moves up to overbot now, that would coincide with the yen moving up to 99+ and the stock markets will be selling off in force.

The blue lines show an inverted H&S targeting 100-ish. If the yen weakens again to regroup lower, say down to the lower trend line, this would create a new right shoulder for the brown inverted H&S that will target 101+. The pink oval shows the tight bands that squeezed out the up move in the yen (just like the SPX squeezing out the down move since equities move inversely to the XJY).

Projection is for a slow steady sideways to sideways upward bias move in the yen as the year plays out. This will frustrate traders that are long Japan and US stock markets. In the near-term, however, the yen will top out in the day or days, or week or so ahead, and drop to regroup which will allow the stock market to recover higher. Overall, the stock market should continue to trend sideways to sideways lower this year as the weekly charts continue indicating. If the stock market drops today, this would likely be a good place to enter a quickie long trade for a day or few as a countertrend play. 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.