Marketview: Huge In Japan


A volatile week all about price discovery and mild uncertainty comes to a close. Trade early in the week saw incredible volatility in the Yen and Japanese equity markets. USD/JPY made the round trip below 100 and the Nikkei hit the headline-baiting 20% correction. The ECB rate decision was a hold and Draghi came off a bit less dovish. What fun is a “hold” when the US and Japan have embarked on experimental programs which future academics devote entire careers to study?

Late in the week the market reversed off oversold lows and continued higher on a better than expected NFP report. Judging strictly by the market reaction, it would appear that this was a MONSTER report. But, this is the Bizarro goldilocks market where not-terrible-but-not-too-good ensures Fed predictability. The enemy is “good”, specifically the kind of good that is not indisputably amazing. This kind of positivity invites disequilibrium and uncertainty.


The market has corrected some of the froth from the previous breakout. Incredibly, investors have become even more bearish in the process. Fear of optimism, maybe? We could see some additional hangover and back and fill from the NFP report, but it looks like volatility will decay and the long side deserves the default nod until proven guilty.

Rotation this week was not ideal for a bullish reversal but not terrible either. Transports, consumer staples/discretionary, and energy led the way to the upside. Industrials, technology, and basic materials lagged.

Winners: $MS, $GS, $USB, $PFE, $BMY, $MRK, $HAL, $APA

Losers: $EBAY, $QCOM, $AAPL, $IBM, $BAC, $JPM, $CAT, $FCX


The Yen carry trade is basically driving risk markets globally and will eventually destroy everything you love. It is a virtual certainty that large positions will need to be unwound leaving too many looking for the exits at the same time. The carry trade and associated consequences were even included in the Level 2 CFA curriculum this year. But who is to say a disorderly exit has to happen next week or even next month? No one knows how long this funding machine will last for. Just for your amusement: construct a hilariously speculative trade using Yen as the short side of the spread. Below, I’ve constructed a ratio spread of Short Yen long $TSLA — or, as the professionals like to say: Telsla in Yen terms (you’re welcome). As long as trades like this continue to work, the long side deserves your humble respect. It things start to unravel it should show up in these risk trades first. If not, you will certainly notice the 40 overnight handle gap lower.



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