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Wednesday, September 27, 2006

Japanese Yen

Here is a market that is setup to rally but continues downward. The seasonal tendency is for a rally at this point, and the commercials are heavily long. However, as you can see by the red line drawn on the screen, we are in a strong downtrend.

I have marked a B for buy on the chart above that downtrend line. Any weekly close above this line at this point would be a signal to go long this market. Then if the trend does change to upward we can trade pattern setups along the way.

Until this trendline break, NADA. To quote Tom Petty, "the waiting is the hardest part."

2 comments:

lew said...

chris,
Looking just a bit more to the past, in 2005, yen went from around 103 to 115 and the best time to short were every time it rebounds to the trend line. And I noticed that throughout this period the commercials became increasingly long (while punters went the other way) so looks to me the commercials were wrong all year long and got killed by the speculators.

Applying this to the current situation, would you not say that one should go with the flow and continue to short yen ? And technically one should do so whenever it hits the red trend line ? And of course, once there's a decisive break over the trend line then this game would be over.

cheers
lew

Chris Johnston said...

The trend always rules the day. I did make one short trade in the YEN last week for a small gain. The ideal setup would be a rally that brought a big shift to the short side in commercial positions.

It is best to have both the trend and the insiders together in my opinion. However, over the years in general the YEN has rallied at this time of the year, so any shorts for me are going to have a very short leash.

The week of 9/9 05 is the best example of having the trend and the commercials together, and look at the drop we got.