Chart Of The Day

Much of the volatility is caused by the Japan yen carry trade. That is where large investors borrow/short a falling yen yielding about 0% and buy a rising US$ and invest that in US stocks and bonds. If the Yen rises big it all blows up!

On the weekly chart you can see that trade was working all year until July. It really went bad as the BOJ raised rates during the same week the Fed signalled its intention to cut. There was a similar yen unwind trade during last years September/October correction but this recent unwind has been far steeper and faster. The -13% decline in Japan is more like a crash, not what we saw in the US markets, it is just a correction.

There is two long term patterns on the chart underway. First we have a long term wedge pattern indicated by the blue lines. The HUI broke out of this to the upside in May.

2^nd there is a long term cup and handle formation. I could have spent more time drawing a better cup but it is there. The break out from this will be a big deal. The HUI is now about 310 and the break out is about 375 and that is only about a 20% move higher. It is going to happen this fall/winter. Could be sooner with all the uncertainties abound.