Wednesday, March 24, 2010


Check out this chart of YCS, the double short yen. This gives us an indication that the market levitation based on dollar weakness may be ending. The double short yen ETF broke out today as there has been building strength in this position since December. I've been watching for a breakout above the $20.50 level and we got it in a big way today.

Here are my levels on the YCS trade.
Purchase below $20.75
Sell Stop - $20.45
Initial Resistance on the upside will be around $21.50
Ultimate Target to exit - $23.2 (There may be opportunities to sell near $21.60, buy on weakness for a final push to the $23 area, but I'm trying to keep these levels simple).

Again, I want to put this trade in the context of my overall view of the market. Even though YCS is breaking out, I'm sticking to my view that we still have around one month of upward movement left in the market till the end of April, but even during this last gasp up, weakness will sort of permeate the market rather than suddenly showing up in one giant sell off. This sort of trade showing dollar strength gives us a view of what might be to come. Even though equity markets are at 52 week highs, we are seeing the dollar gain and the yen weaken - all in the midst of another log on the fire (Portugal being downgraded by Fitch) -

Why is the dollar showing strength? Treasury auctions are not being bid so well and interest rates are climbing and Europe is on the radar again for its sovereign debt issues. I want to reiterate, I believe we have some upside left (1200 target on S&P) however this is the last little push in sight for the entire year in my opinion. We want to begin identifying trades that benefit in a falling market and begin closing out winners that have performed well. I may be a bit early in this trade, but I am willing to enter in and have a hard stop to limit downside, ultimately, this is a good risk reward and sets up well for my strategy for the remainder of 2010.

1 comment:

  1. Hi I went through a December post of yours last year and made 2 comments. I'm not sure you read back so I just wanted to point them here (and you can answer here if you want).

    I'm intrigued by what do you see as a catalyst for the beginning of a down move. You still seem to be positive on economy (I know tops are formed here if the market sees bad things coming, but this last years the market was so poor at "seeing"; I don't consider the improvement we had last year to justify the rise in S&P as we're overvalued and the private sector is shrinking, so it's momentum rather than anticipation; volume is also of concern and it tells that robots are playing the market - lest than 4 billion exchanged these days on NYSE).



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