Bears Reported to Have Begun Munching on Bulls Who Have Fallen Into Bear Trap

I'm sorry it has to be this way, folks, I really am. But it looks like the bears have set the trap. The bulls have wandered in. And now, there's only one thing left: for the bears to have their lunch, and for the bulls to meet their fate.

Fundamentally we know the story: unemployment and low retail sales in the US economy are all the talk. And while the January effect coupled with inflationary stimulus packages may have helped the market engineer a bit of a rally, the economic woes are still clearly in place, and it looks as though the primary trends are preparing to resume themselves. For instance, at the time of this writing, S&P 500 futures are pointing to a fifth loss in a row.

Technically we see a nice potential trade lining up on SPY, particularly if SPY can break support at 85.43. The market is now trading below the 5, 10, 20, and 50 simple moving averages, all of which are converging -- another indication the bear market rally may be concluding. A break below 85.43 could pave the way for a retest of previous lows at 75.

Check the chart below.

A lower S&P 500 is also generally correlated to a stronger yen. We have seen the yen begin to rally again, as the USDJPY exchange rate has broken below 90. The chart below plots the USJPY (blue and gray candles) against the SPY (red and green candles). In sum, a resumption of the bear trend in the S&P would be a bearish sign for USDJPY, which stock market traders can take advantage of via the FXY ETF.

Disclosure: Short USDJPY.

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Taking A Look at the Reversal in the Japanese Yen

The Japanese Yen has been strengthening against the world's other currencies for the past few months. For the time being, however, this trend seems to have reversed. The charts below tell the story.

CHFJPY - Note the recent strong uptrend.

EURJPY - Ascending triangle formation in the works.

USDJPY - Moving averages turning upwards, and price trading above moving averages.

Personally I've been in and out of short USDJPY since 101.30; I just closed my most recent USDJPY short position, as I think a short-term reversal of sorts may emerge. Still, though, I think the long-term trend of yen strength will continue. Accordingly, I'll look to re-enter on a break below 88.00, or possibly 85.00.

Yen traders may also find the recent comments of Akio Mikuni, president of credit ratings agency Mikuni & Co., to be of interest. Mikuni said:

Japan’s economic model has been dependent on external demand since the Meiji Period that began in 1868. The model where the U.S. relies on overseas borrowing to fuel its property market is over. A strong yen will spur Japanese domestic spending and reduce import prices, thereby increasing purchasing power.

Mikuni said the USDJPY could fall to 50 or 60 from its current price of just aboe 90 unless Japan takes "drastic measures" to help bail out the US economy.

Disclosure: No position.

EURUSD: The Comeback Kid of the Forex Market?

Last week EURUSD was testing the bottom of a descending trendline, and while I don't trade dollar strength because I don't trade against what I perceive to be the long-term trend, I expected it to fall.

Looks like I was wrong. EURUSD did shoot out of the descending triangle quickly -- but it did to the upside. So is EURUSD ready to start an uptrend again? Let's see what the charts tell us:

1. The four hour chart shows the moving averages bullishly aligned, Moreover, the three consecutive bullish candles, each with higher lows, and coming following a downtrend, suggests a three white soldiers pattern, which would be a bullish sign.





2. Meanwhile, on the daily chart, we also see the three white soldiers pattern, as well as the moving averages having turned bullish.





3. Lastly, on the weekly chart, we see that the market has been trading in a range for the past few weeks, consolidating its previous sharp moves. Now, though, we see a bullish breakout, as well as a change in direction on the 5 EMA.

Key Levels

If you're looking to go long EURUSD, I'd look for resistance at around 1.3250, with support at 1.2950. A break above the 50 EMA, which is currently at around 1.3250, may suggest a larger reversal of trend is forming.

Fundamental Factors Confirm

We're seeing dollar weakness show up in other markets as well; USDJPY broke south of its descending triangle, and gold has broken above resistance at both $748 and $800. US stock market traders will want to be particularly wary of bull markets at this time; is it really a bull market if it were priced in another currency, like gold?

Long-term I am very bearish on the US dollar, so now seems like there may be an opportunity for dollar bears in the EURUSD market.

Disclosure: No position in EURUSD. Short USDJPY.

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