Position Trade: FXY

For the past year we've been treating the market very cautiously on the long side. Although we've found a couple of strong positions, for the most part a lot of stocks were setting up for larger corrections as I mentioned last summer and we are starting to see those really begin to play out. For awhile we were able to catch some really strong downside moves, but a lot of these have also become extended. The market is not, however, really giving us much at all for decent buy setups again. Many stocks have fallen so quickly that corrections off support would tend to be more through time than price and many others simply have not corrected long enough compared to their upside moves on a monthly time frame to easily sustain breakouts at this time. This is the main warning I have given on the long setups we have been watching develop in our watch list. Some stocks gave early triggers, but the monthly charts created risks of further corrections and we are starting to see that play out.

I want to continue to be very cautious at this time, since I am having a very difficult time locating setups either on the long or short side that catch my eye. I suspect that this is going to remain the case for at least several months and likely longer, but hopefully we will find some decent exceptions to this in the meantime.

One of the areas of the market that has caught my eye is the Japanese yen (CurrencyShares Japanese Yen: FXY). Beginning this past spring, the yen has corrected off highs. Unlike many of the other currency corrections, however, it began a bit earlier and the pace slowed into August after three waves of downside. An initial buy setup triggered in the yen heading into the beginning of September. The volume increase this month is a positive development in support of a larger upside move. With this particular three way correction, continuation patterns can offer another opportunity to enter the position. The action itself may even pull back to form a 2B on a weekly time frame later this year. Otherwise a base can form and break higher. Both of these possibilities are drawn on the weekly chart. The highs of the year are strong resistance, but over the course of a year or so, another correction along those highs can lead to another breakout, such as is displayed on the monthly chart. As a result, this has long term potential as an investment, as well as shorter term potential as a multi-month position trade.