The Japanese Yen May Be Turning Around

I have been a little more than critical on the Yen lately … as recently as yesterday.

But when I realize that I’m wrong, I admit it.  When I take a look at all of the information available and see things that I missed previously, I try to correct the mistake.  That’s exactly what I am doing with the Yen.

I said just yesterday that the Yen had further to fall.  My thinking at the time was that the chart had a gap in the mid nineties and that the price would fall to test the gap and perhaps fill it (a topic for another Tuesday I suppose).  I have gotten in the habit of looking at my charts with the 20 and 50 day moving averages.  I also have not looked at an oscillator such as the RSI (yet another Tuesday post).

Well, in my search for a good investment (or at least a trade) I took a longer term look at the Yen through the CurrencyShares Japanese Yen Trust ETF (FXY).  I saw that it responded to oversold and overbought conditions fairly regularly.  I also saw that we are oversold in the Yen right now.

Admittedly, this chart is a mess.  The blue vertical lines show oversold conditions on the Relative Strength Indicator (RSI) - which corresponded to good buying opportunities.  I know that mid-August is a reach for an OS condition.  The red lines point to overbought conditions which were selling opportunities.

Some of you may remember the Short Yen / Long Dollar trade that I had back earlier in the year.  Again, at the time I had other indicators in mind and the trade worked out.  It is true that my reasoning now is contrary to that, but I believe that there are many ways to make money.  My thesis now is a more long term thesis and this trade may be worthwhile for several months.

I look at the level of the MACD and believe a snap-back is due.  I also look at the oversold reading in the RSI as a reason to buy.  What I am looking at now for the first time in a long time is the 200 Day Moving Average.  I’m so used to the stock market not being anywhere close to the 200 DMA that I take it off of my charts immediately.  Dumb.

The 200 DMA has not provided the most reliable support in the past (the FXY is too new of a vehicle to have a great history on the 200 dma).  However, the ETF has not gone far below it for long.  I like the look of this set up on the long side.  I would recommend initiating a position now.

Disclosure: no personal position

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