XJY Japanese Yen Weekly Chart 7-Year Low Positive Divergence Developing Price Extended

The BOJ bludgeons the yen (pink boxes) creating the upside in Japanese and US stocks. The collapse in the yen in 2013 created the +30% rally in US stocks last year; it is as plain as the nose on your face. The yen is at seven-year lows going back to 2007 in fact at the exact same level from where the multi-year stock market top occurred back then. The green lines show positive divergence in place across the last couple years for all indicators but in the near term there is some weak and bleakness in the RSI, MACD and ROC. Thus, the yen should at least receive a dead cat bounce but a lower low will be needed again as the yen potentially bases.

The yen gapped down and collapsed when the BOJ fired the QE money bazooka on Halloween to create the upside orgy in Japanese and US stocks. Governor Kuroda beats the yen daily with a baseball bat trying to destroy their currency faster than other nations. The race to debase around the world continues. The gap down creates an island where price sits now so on the way back up an island reversal pattern may occur if the yen jumps from 87 to 90 and higher up through the gap.

The red lines show the rising wedge, negative divergence and overbot conditions during 2010-2012 that create the top in the yen and spankdown. The red dots show how the yen was over extended above the moving average lines requiring a mean reversion. As Keystone always says, the failures from rising wedges can be quite dramatic and look at how the yen lost 100% of the move from 2009 to early 2012 in only about 15 months as the red rising wedge pattern created uber negativity. Over the last two years the opposite set-up is developing with the green lines showing oversold conditions and positive divergence. The green dots are extended to the downside so price needs to at least receive a dead cat bounce.

The central bankers are powerful and they control the market. As long as everyone believes in the power of the central banks, stocks continue higher. The expectation is for the yen to base moving into 2015 and move higher the opposite of the consensus and what the BOJ is guaranteeing with the QE money bazooka. There may be lots of sideways ahead for a few weeks. 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.