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Wednesday, November 28, 2012

Mailbox: Yen Review and The Delusion And Madness of The Crowd

Kris,

Concentration continue to paint a bullish setup in the Yen (chart 1).

Chart 1: Yen (FXY) and the Commercial (C) & Nonreportables (NR) Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest


A review of the diffusion index, however, suggests a relatively weak setup unfolding and caution (chart 2). Either a stronger signal and lower prices are coming, or the facade of Yen's up trend is beginning to show cracks. I suspect it's more of the later since a rotation from the public to private sector in Japan (as well as around the world) will cause Japanese equities to bottom sooner rather than later.

Chart 2: Japanese Yen (FXY) and Yen Diffusion Index (DI)

Regards,
Eric
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Hello Eric,

I am a long time reader of your sight and very much appreciate the insights that you put on them. :-) 

I am curious to know if you would be willing to put up any updates regarding the Japanese Yen?  It would very much be appreciated.

Thanks and keep you the great work. 

Best Regards,

Kris


Kevin,

The behavioral tendency of standing with rather than against the crowd is undeniable for humans.  Millions of traders (and investors) are taken behind the woodshed for cyclical beating by the invisible hand as result of this tendency.  It's why I refer to consensus investing as the delusions and madness of the crowd.  The delusions and madness of the crowd is the primary reason why markets become concentrated and I created diffusion indices in my money flow analysis.

There's a reason why you feel lonely.  You're beginning to separate from the crowd.  As Jim once told me, success comes with confidence.  I would add that obtaining wicked skills doesn't hurt either.

Regards,

Eric


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Eric,

Sometimes, when reading you, I wonder if I really understand what is going on, or if what I believe is understanding is actually surface thinking, and I really don’t get to the real issues. In other words, you are playing three dimensional chess and I am looking for the checker board.

I try to keep it simple. I would like to know how the clock works…and why it works that way. But maybe the real important thing is to just be able to tell time, to use that metaphor.

Jim has always said to buy fishing lines and sell rhino horns (on a weekly chart). Between what you publish and what Jim has said through his compendiums and his writing, I try to follow along.

I email you, because it’s pretty lonely where I am. No one thinks this way here much less is willing to act upon their own work, and every time I act for my clients I feel like I walking out on ice of unknown thickness.

But, it’s the only way that I can do this and feel good about it.

So your writings help and glimmer by glimmer, a little understanding comes my way.




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