The collision of global markets and social mood

Friday, April 26, 2013

Bumpy Rides

Today's big level, for me, is 1577.90. Staying above it keeps the pressure on for higher prices, below it opens the door to the rising trend line from the November lows around 1560. The point is that even though the market could head higher, it could be a bumpy ride for some.

I still have a Fib extension target at 1607.41. Eventually I see the market getting there. But anything below 1536.03 at this point could signal a significant correction.

The yen (USDJPY) looks like it is closing in on 101.443, a swing point from April of 2009. Here too the ride could get bumpy. Doubts are emerging about the success of Abenomics.

"The BOJ's inflation forecast is quite ambitious and probably pretty hard to achieve," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance in Tokyo.

"There's no guarantee that by expanding base money, the BOJ can heighten inflation expectations," he said. "It would be tough to achieve 2 percent inflation in Japan with monetary easing alone."

This gentleman is quite correct. Notice he says inflation expectations -- he's rightly focused on psychology. Thus the key to continued yen weakness is based on the Japanese central planners' ability to influence the buying habits of the Japanese people whom have learned to conserve their money for over 20 years. No small feat.

One thing I've distrusted about the move in the yen thus far is that it's based on government intervention. Intervention rarely succeeds long term.

USDJPY is at the top rail of a rising trend channel. There is a lot of thin air down to the 90 area. As totally rippin' as the rally has been, it is not out of the realm of possibilities that the yen could fail to weaken as much the BOJ and the Japanese government would like. In other words, USDJPY could then fall back to new lows in a year or so (yen strengthening). From there the yen could fall apart, from sheer panic. USDJPY could then soar for years.

Bumpy rides are good. They also make for good markets if you're a trader.

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