Overnight a Huge Selloff in the Dollar-Yen and the Nikkei Stock Market

     Wow. Sometimes you got to be and all hell breaks loose. It seems to have been precipitated by a sudden spike in Japanese government bonds (JGB) which led to a lot of profit taking in the Dollar-Yen trade which then brought the Nikkei down 8%.

     This by definition is a pretty big deal anyway, but it was even more so for your friendly blog writer in this case as I happened to have taken a strong position in USD-JPY. Let me hasten to emphasize that I only at this point have a practice account so have not lost any real money. FXC gives you a practice account of $50,000. Just yesterday I was thinking that it's too bad it wasn't real money as I was up 10%-the $50,000 they gave me was now $55,000.

    Now I'm pretty glad it isn't as the account is now $38,000. This is a good learning experience. The trouble with playing the Yen is the Japanese market is open just when we're asleep. Yes, I have bought a new position in the USD-JPY.

   My thought process is encapsulated here:

   "According to independent technical strategist Daryl Guppy, the sharp move lower in the Nikkei is a retreat from the historical resistance at around 14,580."

   "The move was not unexpected, he said, noting that the market will see support near 13,360."

    "Look for consolidation patterns. A fall to 13,400 remains consistent with the long term up trend line," he said.

    "Smith of CLSA says the market will likely stabilize soon as long as the Bank of Japan (BOJ) is able to successfully calm turbulence in the bond market."

   "Assuming the BOJ can get its act together and bring yields down in a stable manner, and the yen stays around 102-103, then all we need is for the market to take some heat out. Today's [Thursday's] move gives it a chance."

   "The BOJ conducted a market operation, offering to buy $1.1 billion worth of one-year Japanese bonds, in response to excessive volatility in the market on Thursday."

     http://www.cnbc.com/id/100760258

     There's a market saying: you can't fight the Fed. In this case I'd rather bet with the JCB than against it. I figure we're about to see how strong the central bank really is. Essentially the health of the Japanese market all comes down to whether or not the USD-Yen can get back up to 102-103. So I'll take that bet. 

     We're always hearing from the MMers that one of the most dangerous ideas out there is of central bank incompetence and weakness. This time I'm putting my money where there mouth is. Luckily, it's not real money. 

     P.S. No doubt all the conservative perma bears out there are going to claim vindication. I notice that every old conservative guy I talk to thinks the market is terribly overbought and is about to collapse becasue of the debt and all that "money printing" out of the Fed. They aren't impressed that the deficit has shrunk either-no doubt because Obama is President.