Fundamentally, nearly everyone, at some point in time, has seen a chart of the America’s monetary base and its near parabolic expansion as a result of Ben’s printing. This should, and does, scare investors from the USD. The counter argument to the former is that fundaments do not ‘play out’ in the short term. It may be prudent to fade the prevailing trend in the market, for when everyone is leaned one way in the short term, it is probably a good idea to do the opposite. For example, a few days ago nearly every contributor on CNBC was bullish and the next day the S&P 500 futures were limit down. Extreme example, yes, but this proves the power of ‘group investing’ (a combination of group think and investing) and how dangerous it indeed is to market structure.

This trade is actually, more or less, confirmed by the lackluster performance in gold and silver. A stronger dollar is naturally bad for the metals complex. Moreover, the looming fiscal cliff also confirms the trade; for traditionally when the market goes down, bonds and the USD rally. It is difficult to put on illogical trades, but sometimes the best trades are the hardest to put on.

There is not much interest in the options, and the futures curve does not have many contracts listed; as a result other products could be used to play this thesis.

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Author @

salernoma@mx.lakeforest.edu

From the beginning of 2007 we have seen 5 waves up, which indicates a motive wave. After the end of motive waves we can look for a corrective move, and from looking at the chart we are currently in it.

I have us currently in a (c) of C down, initially targeting the 110 region or the 50.0 extension. Since nothing is guaranteed in the market we need to keep an open mind and have all counts on the table. This is where I can see another scenario taking place… it could also be (a) of C, with the (b) wave to come. This second count would mean that we would see a bounce of 1-2% to the upside before we continue on to lower levels. It would also target the bottom of the box near the 105 region, possibly extending further down to 102 area.

All of this is calling for another 5% drop to go in the yen with the possibly of extending down another 11-12% in the short term.

Author: Peter Nitso

pnitso@yahoo.com

Twitter: @PeterNitso

According to the results below, the average return was 0.18% (since 1992 until 2011). Efficient market theory would suggest that these phenomena do not exist, for rational investors would naturally front-run the rally…this would however create the rally and subsequent sell-off early and thus negating the whole thing. Another possible explanation includes the more psychological confirmation bias. This is basically the decision to favor information that confirms a thought, while negating or writing off information to the contrary. This could include media personalities supporting the myth, for it is naturally ‘nice’ to be bullish during the holiday. Similarly, the optimism bias can also relate, for a small sample set of prior events may sway opinions. For example, if the prior year was a good time for the market, which it was, one may be overly optimistic for the future, negating the larger sample set and only looking at one independent observation. Either way, the data is interesting and the market will move.

Below is the aforementioned excel sheet.

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Author @

salernoma@mx.lakeforest.edu