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Is Now the Time to Short the Yen/Dollar?


Plus a look at some tradable stocks in a hard-to-trade market.

Those calling for the collapse of the Japanese yen and for sharply higher long-term interest rates in the US (hand raised on both counts) have replaced the proverbial "broken clock." So by yet again resurrecting both of these items I will humbly accept whatever jeering I deserve for being a "broken clock." But this is not an exercise in mere masochism; there are two reasons to revisit these trades now: First, if so far you had the wisdom to ignore the many invitations to short the yen (JPYUSD) and the 30-year US Treasury bond (US1), when both of these trades ultimately play out -- and in my opinion they ultimately will -- the payoff from these levels will be enormous. And second, on monthly time frames, both the JPYUSD and US1 are printing exhaustion and/or reversal patterns.

The yen trade is the most ripe of the two, thanks to the "price flip" off of the completed Megaphone 7 pattern; on the US1 it would be more prudent to wait for a February monthly close below 139'01, or a March close below 141'20 to confirm the Megaphone 7 and TD Sequential Sell setups. Note also the completed TD Wave 5 on the US1.

I recognize that JPYUSD has had a remarkably sharp move down in the last couple of weeks, so one might want to "fine tune" an entry using shorter time frames (127.50 - 128.50 looks like a good level); but the long-term downside potential makes the recent slide look rather irrelevant.

On the equity side of things, S&P 500 (SPX) 1360 is a rather obvious resistance level and I won't re-hash the structural and geopolitical risks to which the market seems to have grown desensitized. But with the corporate bond market showing no signs of cooling ($9.6 billion sold yesterday), short aggressively at your own risk.

Away from the macro, this morning Dollar Tree (DLTR) is losing some of its cult status after posting uninspiring results against a backdrop of frothy (to put it mildly) expectations. The monthly DeMark chart – completed TD Sequential / Sequential Countdown / TD Wave 5 / TD Megaphone 7 (but no "price-flips" yet) begs shorting...

...but this is what really got my attention:

Look at the forward growth rates. If estimates start coming down on top of already slowing growth, methinks the infatuation with Dollar Tree and the other "dollar-store" names will dissipate rather quickly.

On the happy side of things, long time fave Procera Networks (PKT) reported exceptional numbers last night and the anecdotes on the approaching US wireless opportunity for Deep Packet Inspection (DIP) companies continue to add up (see F5 Networks (FFIV) acquisition on Traffix). That said, I think Procera's valuation and recent run-up merit a pause. For the next couple of months I'm OK shedding my stock above $20 and being a buyer below $20 by selling that option straddle.

Editor's Note: At Minyanville we often argue that markets and stocks are driven by four primary attributes: the fundamentals, the technicals, the structural, and psychology. In this weekly piece, trader Fil Zucchi will attempt to digest these four measures to come to actionable recommendations, but with a couple of twists: Rather than relying on standard technical analysis, he will examine the technicals through the lenses of "DeMark" indicators. And rather than highlighting straight entry and exit points for stocks, he will use options to gain long / short exposure, control risk, and generate cash flow. Investors should note: This column will be written 1-2 days prior to publication, so by the time it appears the prices of the securities mentioned may have changed.
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Positions in PKT DLTR FFIV US1 SPX
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