07/30/10: As calm has returned to the credit markets the Canadian dollar has joined the collective counter trend rally against the US dollar. Bond and equity markets believe growth has peaked suggesting that there is now room for further government sponsored stimulus measures should the correction in stocks get too out of hand. Significant to Asian growth prospects, The Japaneses Yen has finally broken a long standing resistance line (Please refer to this weeks CTS spotlight blog for more on that). If Japan has indeed awoken, that region of the world will have yet another growth engine coming online. In the face of this, commodity prices in general are reflating with noticeable moves higher this week in Palladium, Wheat and Coffee. Further to last week's CTS, OnlyDoubles subscribers ought to have taken a position in Feeder Cattle.
Jap Yen: On first blush I thought this chart would be clean and simple - a powerful bull market off a nice base. After some study my opinion of the Jap Yen is much more cloudy and uncertain....typical markets!
The problem....I don't think the latest move higher in the Japanese Yen is a new bull market. I think this market looks exhaustive, and dangerous. It also leads me to further believe that the latest US dollar sell off is a trap. Through the two charts shown above, I will try and explain why...
Weekly chart (on left above): This market has been pointing higher for about 12 weeks since it put in a double bottom in the last spring from 1.0859. Over the past quarter we have seen higher highs and higher lows (most recently taking out the 1.138 resistance point) suggesting the late '09/early '10 correction had ended. Indeed, we are currently within shooting distance of the important high at 1.179. Should that be taken out, one must look for a move to the top of the weekly channel (at or near 1.25). We will cross that bridge when we come to it! For the time being, yes we are heading up and that is why CTS is positioned so. In fact, Regular CTS followers should be enjoying an almost 7 cent profit at this point. New positions should NOT be considered. Momentum players may consider adding to positions on a move through 1.179, but not until then.
Here is where the problem comes in for me...
Monthly chart (on right above): The first thing that jumps out at me is the massive monthly move higher since the '07 lows. Interesting here, we are currently within a cent of that long term trading range breakout target (1.165). Absolutely remarkable! As well, a 50% retracement of that massive move higher would bring prices back into the .99 area (or almost 15% lower!).
Yes this market is still pointing higher and if one is long from the weekly breakout (1.0859) then enjoy the rally. My hunch is we shall move higher through the rest of the summer. Should the lows of last spring be violated, there could be trouble - so watch the 1.05 level like a hawk.
That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
http://www.the-rational-investor.com
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