Previous prediction on the Yen scattered like dust in the wind!

The JPY/USD cross broke the proverbial camel's back at 112 and proceeded to knock at the 110 level.

A classic case of further downmove when a strong support level is breached.

The main culprit is the unwinding of the speculative carry trade, with the weakness of the US economy not far behind.


The 110 level should offer some measure of support for this cross rate, but a measured move calculation(based on the drop from 124 to 112) targets as low as 106, although the RSI levels are as depressed as the Aug 17'th lows, and this, in my opinion, is unsustainable in the medium term.

My best scenario is a highly volatile, zig-zag pattern down to 107-108, before a sharp rebound up to the 112 level, which is now a support-turned-resistance.


















On the weekly chart, the Yen is just one big number away from the 109 low seen during the the May '06 selldown, so clients trading this cross might want to place some limit orders around the 109 level for next week. I believe strongly that the 106-107 level will only be seen in the case of a full-blown panic!

This week, despite gains on some well-timed Hang Seng puts as well as calls, together with small profits on the technically challenging OSIM and Creative, I have lost heavily on other second liners, but I am thankful that I chose to cut loss on them, so there is minor consolation on the back of the Dow's continual plunge, now standing below the 200-day moving average.



Here are some snapshots of the current, and possibly future state of the U.S economy, courtesy of NY Times:























The second graphic paints the more frightening picture of the biggest economy in the world, as it shows how much U.S consumers in various states have borrowed on their home equity, using their homes as an ATM machine, contributing heavily to the current crisis, helped in no small part by the loose lending practices of major banks.

An interesting insight for clients though: A search on the Bloomberg terminal of the insider purchases in the U.S equity markets of the past five days reveals that many smaller banks, like Bank of Florida, have seen moderate buying of their shares by company insiders,so more daring clients may choose to nibble at Citigroup shares if they should fall to the $30 mark, or AIG should the giant insurer's shares drop to $50-52.























My mentor who is a self-made multimillionaire, having amassed his fortune from timely bets in SMRT, UOL, Dragon Land and CLOB shares(he bought like there was no tomorrow as panicked investors dumped them in their last week of trading in 1998), says he is eyeing CEI, a rather boring stock, that he claims is paying an 8-10% yield on dividends.

I checked it out, and found that the chart indeed shows that the stock is bottoming out. He says he is in no hurry to get in, but it's the only stock he is interested in buying in this environment.Once in, to the tune of 1000 to 2000 lots, he is prepared to sit on it for the next five years.































A rather compelling buy technically !

Insights, insights, insights....

This is the goal of every trader: to gain an insight into the market he or she is trading so as to consistently make profits.

I hope to supplement your insight formation processes with this blog, and wish you all the best in your trading endeavours!


(Please click on the pictures to get a closer view)

Today, I will be featuring some of the 30 component stocks in the Dow so that readers can use the information to perhaps decide where this crucially important index is headed in the short, medium and long term.

The technical picture on Dow Jones Industrial Average components


IBM

With over a 6% weighting in the Industrial Average, and with the relative strength of technology , IBM is, in my opinion, a crucially important stock in deciding the direction of the Dow.


























Personally, I believe there is a switch of capital from consumer discretionaries and financials over to techs. Witness the strength of Microsoft(despite Bill Gate's selling),Hewlett Packard and even Intel, not to mention the soaring ebullience of Google, Baidu.com and Research in Motion!

Citigroup

With an analyst's moxie putting the banking giant in sharp focus this last week, Citigroup's rebound or further breakdown could help or impede the Dow's progress.
The bank's slogan used to be 'Where Money Lives', but longtime resident Moolah seems to be fleeing its home lately.




















On a medium-term basis, Citigroup stock has seemingly broken down completely, but the Fibronacci levels indicated could provide some measure of support.


















For the last stock to be featured today, think OIL!



Exxon Mobil

















The meteoric rise in the price of black gold has caused Exxon Mobil stock to behave almost like an Internet stock did in the late 90s, as investors hoping to participate in its record profits chased the stock up to the rafters.

However, Crude Oil has little upside from current levels, and news reports are alluding to the fact that Exxon may actually now be hurt by such stratospheric oil prices, perhaps due to their hedging against it.



Next, the 'Halo' stock.

Microsoft

















The next topic I want to focus on is the carry trade. For this I monitor the technical picture of the JPY/USD cross very closely. The sudden surge of the Yen to 112 to the Greenback on Aug 17th was a clincher that emboldened me to buy into stocks that day.














Currently, the JPY is the only major currency to fall,albeit slightly, against the US Dollar, while every other currency is gaining like gangbusters, especially the Euro, on the heels of the second Fed rate cut in less than two months.

One of the reasons is the carry trade, where traders borrow in Yen and convert to Dollars and other currencies like the high-yielding Aussie and Kiwi to trade emerging market stocks.

The chart above shows that the 114 level has not been broken despite the volatility of last week, and so the carry trade is alive and kicking!

However, speculative traders may need to monitor the 114.00 level as this level needs to be supported intra-day for the current uptrend of the US Dollar to be maintained.