Friday, June 14, 2013

Bullish Nested 1-2s or Triangle?

The market made a marginal new high today for the wave I have marked as W1 and corrected 50% to support in the 1623-26 area for what would be an ideal W2 and a shoulder of yet another IHS. So the nested 1-2 bullish setup seems complete or close to completion and we should see a strong break out wave early next week to confirm the pattern. Now, because of the nature of these set ups and the wave from 1687 to 1598, there is also a possibility of a triangle which is marked in red. Should the market stay within this triangle or break to the downside then that will be a signal to go defensive, specially if the TA keeps trending down. I am sure next week is going to be interesting.

Also, my post yesterday about a weak Yen benefiting the Japanese got some attention, so I will post some data for those of us that enjoy economic data.. it's weird, I know. My argument is that an advanced export oriented economy needs to have a reasonably priced currency. In the case of Japan, a strong Yen is great for people exporting to Japan but not all that great for the Japanese themselves. Japan was the economic miracle of the 60's and 70's  doubling their economy every 7 years. But then came the Plaza accord in the mid 80's that basically made the Yen go from 250 to 1 USD to 80 to 1 USD last year and here is what happened to the Japanese economy in the last 20 years.

Data from the IMF

1993 Japanese GDP in Yen = 482 Trillion Yen
2012 Japanese GDP in Yen = 486 Trillion Yen

Which means, Japan has managed to grow less than 1% in Yen terms in 20 years! in dollar terms their economy looks like it grew 30% so to an exporter, that's 30% more to sell to. But in reality, it is an stagnant economy to a Japanese resident. Now compare that to neighboring China, which up until recently had been accused of keeping their currency too weak.

1993 Chinese GDP in Yuan = 1.9 Trillion Yuan
2012 Chinese GDP in Yuan = 17 Trillion Yuan

That's an economy that grew 800% in 20 years in Yuan terms. In USD terms it went from $390 Billion in 1993 to $7.2 trillion in 2012 or 1,700% growth. This is the primary reason I am invested in Chinese shares in the first place, it is a fast growing economy.

IMF Japan GDP Stats
IMF China GDP Stats

So when Japan rallied 80% in less than a year on expectations of a weaker currency, they rallied for good reason as they need to change their economic environment in order to really grow again.

Anyway, enough economics.. Have a Great Weekend!

Main S&P 500 Trends*

Short Term Trend = Neutral leaning bearish
Medium Term Trend = Bullish
Long Term Trend = Bullish 

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market.

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