In the chart below, which was posted on 8/29 (see post), I suggested a “game changer” was about to take place, with a rally in stocks, due to the pattern in the Euro/Yen. Since that post the 500 index is up almost 7%!
Now what? First off… I started working on this chart at 5:15 a.m. (central time), so the day is far from over and I am still on my first cup of coffee!!! Falling wedges are bullish 65% of the time, so a rally out of a falling wedge isn’t a surprise. Humbly the size of this currency breakout did surprise me to some degree though.
Unless history changes, the rally in the Euro/Yen is suggesting higher stock prices.
I find the timing of this upside breakout very interesting with the 500 index at the very top of the multi-month trading range/resistance. Euro/Yen is suggesting a NEW LEG HIGHER in equity prices!
Game plan…Keep your ticket to ride as well as keep stops in place!
I agree with Bob_in_MA. Increasing liquidity is good for stocks and increases in liquidity are coming from foreign purchases of US T’s either by China directly or by China via Japan. Meanwhile employment and housing stagnate or decline. Is that a classic macroscopic divergence or what? It can’t end well me thinks.
I wonder how much of the jump was caused by the intervention and how much by short covering?
What’s ironic is that China buys yen bonds to keep it’s currency low and then the Japanese buy Treasuries… we’re the one’s left standing when the music stops. Bet this doesn’t go on for another year.
Thanks for the comments, deeply appreciated. I am a occams razor fan…use the simplest means to accomplish a goal.
I am not against MACD, love moving averages actually, yet I have faith in the Power of the Pattern… Since we buy “Price” I tend to lean towards looking a price in all ways possible.
Sir John Templeton shared that the largest equity meal in the history of the world had been eaten between 1980 and the late 90’s and that it might take a couple of decades to work off.
With this in mind, I am attempting to help people by sharing that even if fundamentals might be confusing, price action can be managed.
Again DG…Thank you!
I’ve noticed that Chris doesn’t use indicators like MACD… He buys/sells and shorts/covers purely at support and resistance, and looks for correlations in other markets at the same points in time.
Nevertheless, using MACD on daily timeframes of CurrencyShares Euro Trust, I see that FXE could create negative divergence if it rises back up to $132 approx. If we soar past that level, new momentum highs will be created, thus increasing the likelihood that we rise even further. For now, $132 is a good target above us (using pos and neg divergence of MACD and price).
Great work Chris! Thanks for your daily contributions.
Chris…I see SPX banging up against resistance again today at about 1120. How do you know when it is time to buy SDS? Do you wait for MACD lines to cross? Do you just put your faith in the parameters of the trading range? If SPX does not fall, how far above resistance do you wait for it to rise before buying SPY?
Thanks for your insight.
Great points…As I mentioned in the post the chart was done very early this morning.
Stepping back a little, from a pattern perspective, I respect that the Euro/Yen is on support and has created a bullish falling wedge…which two-thirds of the time is bullish for the pair trade and usually equities.
Should the euro/yen break support line (2), it would be a big negative for equities!
Yen is down due to billions of dollars of intervention by Bank of Japan. Though the futures went up a bit earlier tonight, they are down quite a bit now (dollar index went up). ES/YM typically move with EUR/JPY but there not today. Do you still think we will rally in SPX?