It was a great Blue and Gold Boy Scout's dinner this evening.. and my daughter's science fair project looks good to go for tomorrow morning.
Pretty much all of the post mortems I've managed to read about Wednesday's topsy turvy session failed to hone in a key reason for the rebound in the stock market today: a decline in the Japanese Yen. This intraday chart of the FXY (CurrencyShares Japanese Yen Trust (candlesticks) vs the Dow (solid black line) depicts perfectly that when the Yen was at its strongest Wednesday, the stock market was at its weakest. As the Yen weakened, the stock market rebounded:
Moral: Keep an ever closer eye on the Japanese Yen. Sure, sure, I know it's expiration week and that it adds more volatility to the picture, but the relationship between the Yen move and the stock market move is undeniable. The above chart is a major red flag of trouble ahead for the stock market should the Yen carry trade unwind further. We're only talking 115.9 Yen at the worst of it today. The bulls should be praying that subprime fears are completely overblown and that the need for a summer rate cut is complete poppycock and fear mongering by the bears. Heaven help the bulls if the rate differential between the U.S. and Japan narrows in the months ahead! But as Lincoln oft famously stated, 'What is to be, will be, and no prayers of ours can arrest the decree.'
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