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REVERSAL

The Yen's Power Move

05/11/06 01:32:18 PM
by Arthur Hill

The recent surge in the yen reversed a 14-month downtrend to signal a continuation of the multiyear uptrend.

Security:   $XJY
Position:   Accumulate

On the weekly chart (Figure 1), the long-term picture shows a massive advance, a big correction, and a strong breakout. The massive advance extends from 2002 to 2004, and this move carried the yen index from below 75 to around 98 in three years. The index peaked in early 2005 and embarked on a sharp decline the whole year.

FIGURE 1: YEN, WEEKLY. The yen shows a massive advance here.
Graphic provided by: MetaStock.
Graphic provided by: MS QuoteCenter.
 
Even though the decline was sharp and a classic corrective pattern failed to form, the retracement was normal and the index found support near a prior consolidation. A normal correction would look like a falling price channel or wedge and be fairly orderly. This decline started in an orderly fashion (gray circle) and then got out of hand with a sharp decline in the last few months of 2005. Even so, the index found support near the 62% retracement mark and prior ascending triangle. The trading range around 85 (gray box in 2003) shows a prior battle zone between bulls and bears. Prices evidently have some memory, and this zone held in 2006.

I am also calling the 2005 decline a correction because the surge over the last few days looks like an impulse move that starts a long rally. The index consolidated around 85 with a triangle the last few months and broke out with two gaps and a surge from a six-point surge (84.63 to 90.67). This is a huge move that calls for a complete reassessment. In addition, the index broke the 2005 trendline and exceeded the January high. My outlook is for the yen to continue higher the rest of the year and challenge the 2005 highs.


Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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