Dances With Yen

All eyes continue to be on the EUR/JPY pair – as where it goes equities will go. Since today is a bit of a song and dance (including the courtesy of a textbook shake out just 1.39 handles ahead of the plunge into the abyss) I would like to offer a more in depth look at the EUR/JPY. Because if it continues to ‘teach by example’ then things are not looking so rosy on the equities front.

BTW, in preparation of what may transpire at some point this year I have already acquired the proper tool for the job:

On a test drive I snapped a quick shot of this:

See guys, that’s why you don’t go swimming in uncharted trading pits without Evil Speculator 😉

Let’s start with the micro view – my 30-min intra-day chart. As you can see we did pop above that 20% mark on my stochastics but are at the brink of dropping below again. That could get ugly in a jiffy – for an example look what happened last time (i.e. on the left of the dame chart).

Now the daily stochastics is looking pretty ugly – has been embedded for a while now and still pointing down. Also note that prior breaches and reversals to the 80% mark in the stochastic mostly resulted in sideways or mildly bullish price advances. The astute SSR may wonder what that red line is all about. Well, since we dropped like a rock lately I wanted to know where the next support level may be.

Boy, did I have to zoom out – 10 years that is. The last time we were this low was back in November of 2000! Right at the end of a 65 year bull market cycle (in non-fiat gold-ratio Dollars).

Also note that the weekly stochastic is also below the 20% line and is pointing straight down! This is one monstere carry trade unwind – some massive stops have been run here. Yes, the EUR/JPY is deeply oversold now – but as I’ve said before: Markets fall off the plate in deeply oversold conditions. There is no guarantee this will happen, but if it is to happen the conditions are pretty ripe here.

Those are some ugly charts and they could get uglier in no time. The risk is to the upside – follow the lesson we learned during the 2009 bear market rally: Don’t fight the trend – especially if the long term writing is on the wall. However, allow for violent snap backs (in both currency or equities) – because the status quo will fight like hell to maintain itself. Be mentally prepared – on the down and up side.

You have been briefed – now go out and play, but don’t take any prisoners, because they won’t.

2:41pm EDT: Karl ‘No Slave To Fashion’ Denninger chimes in on today’s obvious FX interventions. Enjoy! 😉

Cheers,

Mole