The Down Trend Is Ending In the Yen - Signs of Exhaustion in the Commitment of Traders Data

Click on Chart to Enlarge

Click on Chart to Enlarge

The chart on top is the FXY etf which is the Japanese Yen.  The lower chart is the CoT data, but it covers a longer time period than the top chart, so checks the dates for correspondence.

I am pointing it out here because it is displaying one of the most significant and sure signs of exhaustion there is based upon the Commitment of Trader's data.  So this trend appears to be ending, and one could look to initiate speculative longs soon with outstanding reward to risk ratios.

Of note is the horizontal support line.  The low at the beginning of 2014 marks the point of maximum net short by  speculators.  This can be seen in the chart of the CoT data below.  That point is a multi year extreme in net short by large specs.  Even on the move to lower lows in FXY, the specs didn't get more short, so this shows that their selling capacity is exhausted - it is a type of divergence or non-confirmation with the price trend.

Now the other interesting thing here is that when price broke that horizontal support, it led to the smart money/commercials, actually having to sell into lower prices for a few weeks, which is opposite their style.  This is a hallmark of the end of a trend when the commercials have to capitulate and take a massive loss.

I will link here to a post I made about cotton in 2011, because it accurately showed this pattern in reverse - as a topping pattern - on this blog as the top occurred in cotton before a massive bear market took place in the following year or so.

So one could look here to short the USD/Yen pair on appropriate signals.  Also one could look to buy FXY call options with several months to expiration with strikes in the 80-85 range after careful analysis.  Also, YCL is a 2x leveraged bullish Yen fund, which would be used as a leveraged equity play to go long on appropriate signals.

I personally am looking at some call options on FXY, but currently have no position.

New Trade Orders - FXY and SPXU

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The S&P 500 is short-term overbought right now. There is also gap resistance overhead. I have placed the tentative pattern interpretation I have been working with the last couple weeks. That would make tomorrow as the ideal pattern completion point for what may be a very weak wave "c" of an upward flat pattern. This pattern would also imply very strong downside after the pattern completes. In this case I want to be short/inverse going into the weekend. So the trade is to buy SPXU with a limit of 33.22 for Friday.

Click on Chart to Enlarge

As a follow up to the recent post highlighting the bullish sentiment backdrop on the Yen, I am posting a trade on the FXY (Yen) ETF. I believe this would likely occur with stock market weakness, but the sentiment data stands on its own. So the order is to buy at a limit of 107.00 and there is a clear stop level at 104.50. As a side note there is a 2x bullish Yen ETF, YCL for those interested, but volume is very thin still, so I would stay away unless you are trading a small amount of shares.