The Return of Nostradumbass
Just a big picture item to keep your eye on these next few days.
Much has been made of the selloff in the Nikkei...and deservedly so! After years of moribund performance, Prime Minister Abe decided to blow out the Yen by effectively devaluing it by half over the next few years. The result of all this haphazard money creation was an almost immediate flight into Japanese stocks. The Nikkei 225 index nearly doubled in a run from 8,500 to 16,000 between November and May.
But a funny thing happened on the way to blissful prosperity..the market broke. And it broke hard! Falling nearly 20%, from 16,000 to 12,500 in a matter of days. The selloff in Japanese equities boosted the yen and the yen-$ "rallied" from near 97 to 106. All of this yen strength has contributed to a drop in the POSX from near 84 to this morning's level below 81.
"OK, so what's the deal, Turd? Why does this matter?"
Because it seems quite clear that a sharp, short-covering spike/rally is coming for the Nikkei. Take a look at the two charts below. Note the clear double-bottom at 12,500. That's the first thing that should grab your attention. Then look at the daily chart. Since when does something go straight UP and then come straight back down? There's almost always a bounce which leads to a failing double top. And this is what I think is coming. (Btw...if you're crazy enough to attempt to trade something like this, you can start here: http://etfdb.com/index/nikkei-225-index/)
Adding some confidence to this idea is that fact that Tungstenman Sachs has decided NOT to close out their "long Nikkei" recommendation, even though their stops have been hit. Hmmm. What do you think they are
planning to make happen expecting to happen next? http://www.zerohedge.com/news/2013-06-13/despite-being-stop-lossed-its-long-nikkei-reco-goldman-refuses-close-out
And the ability of The Pig to magically reverse at critical support levels is well-documented. Here we are again. The 81 level in The POSX has consistently identified as important support or resistance, depending upon which way the index is trending. And where are we this morning? I've got 80.76 last. So, here's another piece of the puzzle. A snapback rally in the Nikkei will likely lead to Yen weakness and a move back toward 100. Since the Yen is a prominent component of the POSX, a falling Yen will help to bounce The POSX back UP and above the critical 81 level, maybe all the way to 83, at which point The Pig will begin tracing out "right shoulder" of a massive head-and-shoulder top.
IF all of this comes to pass, the short-term effect on paper metal is predictable. Lately it seems that any Pig selloff is greeted with yawns while any upticks have been used as reason to sell sell sell. Let's see if that happens again even though physical demand continues to support price and $1350 has been rock-solid support.
Maybe another trade possibility is to sell crude? A rising dollar will likely generate some crude weakness and you can clearly see that every time crude touches the red trendline on this chart, price quickly reverses.
So, anyway, just a cautionary tale today. Nothing has changed my bullish outlook on metal prices in the near term. All of the stuff mentioned earlier this week regarding the CoT and the BPR is still valid and extremely important longer term. In the short-term, however, there may be a fiat-making opportunity for those so inclined. Good luck!