Posted on Nov 20, 2023, 09:12 by Dave Toth

The market has followed up Fri’s bullish divergence in short-term momentum above 15-Nov’s 66.99 initial counter-trend high with an impulsive break above 03-Nov’s 67.48 corrective high and our short-term bear risk parameter that confirms a bullish divergence in daily momentum.  The extent and impulsiveness of this recent recovery is not yet of a sufficient scale to conclude a major base/reversal-threat environment.  For ancillary reasons we’ll discuss below however, traders are urged to beware of just such a major bottoming event.

The daily chart below shows today’s bullish divergence in momentum above 67.48.  Given the magnitude of this year’s resumption of the secular bear market however, commensurately larger-degree strength above 10-Oct’s next larger-degree corrective high and key longer-term bear risk parameter remains required to break even Jul-Nov’s portion of this year’s massive bear move.  This 68.25 threshold will be the next key level this market needs to recoup to expose a base/reversal threat that may be massive in scope.

What’s pivotal about 10-Oct’s 68.25 larger-degree corrective high and key bear risk parameter is that its break will confirm a bullish divergence in WEEKLY momentum (below).  Combined with:

• understandably historically bearish levels of market sentiment/contrary opinion as evidence by a recent 18% reading in the Bullish Consensus (marketvane.net)
• an arguably complete 5-wave Elliott sequence from 17Jan23’s 79.19 high that may have completed an even more massive 5-wave sequence down from Jan’21’s 97.55 high,
• the USDJPY cash market’s equaling Oct’22’s 151.95 high and highest level in the USD since 1990 shown in the quarterly log chart below, and
• waning upside momentum on this massive quarterly basis,

we believe the risk/reward metrics of maintaining a longer-term bearish policy on the yen have become questionable enough to warrant paring or neutralizing exposure.  To mitigate this admittedly very early warning of a major bottom in the yen, all the bear needs to do at this juncture is break last week’s 66.11 low.  Until/unless such weakness is resurrected, we believe further lateral-to-higher, and possibly much higher levels lie ahead.

These issues considered, traders are advised to move to at least a neutral/sideline position if not a cautiously bullish stance with a relapse below 66.11 negating this call and reinstating the secular bear.  In lieu of such weakness, further lateral-to-higher, and possibly a major bottom in the yen should not surprise.