I’ve received a few questions since yesterday which I plan to reply to as soon a I get caught up on the charts. With the markets not very conducive to trading lately, I had taken the day off & I don’t plan to trade today either. With that being said, we have some market moving news today with the Bank Of Japan unexpectedly announcing additional stimulus measures. I recent commented on the Yen along with the Euro as those two currencies make up the bulk of the US Dollar index. Here’s a quick look at two variations of the Yen via the USD/JPY (US Dollar/Yen pair) along with a 10-year weekly chart of the $XJY (Philadelphia Japanese Yen Index).
Gold & gold mining stocks are trading lower due to the effect the falling yen has on the dollar (yen down=dollar up, dollar up=gold down). As of today, GLD has gapped down below the well-watched mid & late 2013 lows which now moves up my former alternative scenario of a temporary flush-out move below that support level, as my new primary scenario. More on gold & the gold stocks later.
I was also asked if I though that this overnight move by the BOJ could turn out to be a major bull trap in equities & if it is, my thoughts on adding back exposure to the recently stopped out IWM trade. My reply: The market reaction to the BOJ’s move could very well prove to be fleeting. I took the day off yesterday and plan to catch up on the charts today so I’ll try to get back to you asap on my thoughts. Glancing at the USD/JPY currency pair, I can see that it just popped slightly above the 2008 former high which is bullish (for the dollar, bearish for the yen) but it’s too early to say if that breakout will stick. There are also some significant divergences on the price & momentum indicators & oscillators for that pair when viewed on the weekly chart which increases the odds of a reversal soon (dollar down, yen up). However, like your plan, I would only add back a short position following a reversal of today’s pop on the RUT, maybe even wait to see the last couple of day’s gains wiped out in an impulsive manner before adding back short exposure.