Yen and Stocks: Don't Get Comfortable

The Dow has advanced nearly 1,500 points from its January low and lulled market participants into a complacent state that is common (and necessary) before a major price decline occurs. What does this mean for the USDJPY?

When focusing on the bigger picture, there is little evidence to suggest that the USDJPY is headed higher. There is nothing to suggest that the rally from 95.72 is not a 4th wave. A 50% Fibo at 105.18 coincides with the lower region of a congestion zone; which should act as resistance (right now). We are bearish as long as price is below 107.20. An unexpected breach of that level would cause to re-evaluate.

The structure of the rally from 95.72 is additional evidence that the larger trend is still down. The advance consists of overlapping waves and can be counted as a double zigzag (W-X-Y); which is two 3 wave segments connected by an X wave. We'll be looking to confirm a top next week or the week after.

Analyzing the Dow can help confirm or refute a Yen count. Since the October 2007 top above 14,000, declines in the Dow are impulsive (5 waves) and advances are corrective (3 waves). This is evidence of a bear market in its early stages and wave iii of 3 is ready to begin. The area just above 13,100 has acted as support and resistance since May 2007; today's high at 13,132.30 could be the top of wave ii of 3. If so, then a major decline is upon us.

DailyFX

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