They say patience is a virtue, but when it comes to
the markets, patience has been an absolute necessity. This is
especially true of Japan.
On 1/23/13, amidst all the Abenomic hysteria, I wrote an article
Is it Time to Buy the Yen?"
That article highlighted the extremely bearish sentiment that
accompanied a quickly falling Yen and rising Japanese stock market
focused on the setup by saying, "The Yen's sentiment is out of
control and hit a 5 year low this past week. The key is to
wait for the technicals to confirm."
The best way to profit from sentiment trades is to wait for the
technical trend to change before jumping on the eventual Yen
(NYSEARCA:FXY) bottom. That trend change occurred the week of
5/27 as the Yen reversed into a 10% rally.
5 Months Later and Still Extremely Bearish
If you perform a search for "Abenomics", the first link
retrieved discusses the inflationary economic policies of Shinzo
Abe and how it is negative for the Japanese currency
(NYSEARCA:DXJ). This is the general consensus, and having an
entry in a popular online encyclopedia concerning your new
inflationary policies is no doubt a sign of an extreme in
sentiment. Pretty much everyone expects Abenomics to create
In the meantime, the equities kept rising, the Yen kept falling,
but the sentiment measurements we discussed in January not only
remained extreme, they got worse!
Even though the Yen was falling off a cliff, the commercial
hedgers (smart money) kept getting longer and longer, the
speculators (dumb money) kept getting shorter and shorter, and
investment surveys (trend followers) kept getting more and more
negative. These data points combined with the mainstream
encyclopedia entry and general consensus showed an extreme in Yen
sentiment which helped warn that a Yen bottom was near.
The shift back from extremes in all these sentiment measures
have now helped drive the Japanese stock market (NYSEARCA:EWJ) down
almost 20% from its top, including the huge 7% (NYSEARCA:EWV)
intraday decline of 5/23. A similar move in the opposite
direction occurred in the Yen.
The Yen Trend Change
The sentiment extremes combined with the technicals provided a
high probability profit setup for the Yen.
The chart below was one of a few provided with commentary to
subscribers in our February ETF Profit Strategy Newsletter article,
"Jawboning Japan", that identified the Yen setup and signals to
watch that would confirm an eventual trend change.
The above chart was first published to our readers when FXY was
trading at $109, but by waiting for the technicals to align with
the extreme sentiment we were able to get a much better entry a few
When FXY was trading down at $96.85 in May it was very close to
a technical trend change and was alerted to subscribers. "FXY
can be bought with a weekly close beyond the trendline". On
6/2 when the Yen was at $97.46 I followed it up with, "The weekly
Yen has triggered a buy signal on its breakout. The
expectation is for the Yen to now see at a minimum a few weeks of
buying as extremely bearish sentiment is relieved."
FXY rose over $5 in two weeks, up over 5% from our entry with
the also suggested Ultra Yen (NYSEARCA:YCL) up over 10% in under a
The Yen's extreme sentiment was in place all the way back in
January and a warning that the Yen short was very one-sided and
ripe for a powerful trend change. Waiting for a confirmation
from the technicals was all that was missing.
That confirmation finally occurred in late May and is proving
that patience is indeed a virtue as the Yen relieves the overly
extreme bearish sentiment.
Profit Strategy Newsletter
monitors global events and formulates high probability trades based
on fundamental, technical, and sentiment research. We have
moved our stops on the Yen up to breakeven after taking some
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