Japanese pair position closed with Yen oversold

07 January

On the pair of Kubota (KUB) v Nippon Telegraph & Telephone (NTT), I closed half of the position with a 17.2% gain and the remaining half has a 22.7% gain.

Kubota (KUB) v Nippon Telegraph & Telephone (NTT)

This pair was based on the expectation of Yen weakness and now, the Yen is oversold against all currencies. Therefore, it makes sense to close the position.

US Dollar v Yen: 50 week Disparity Index

The chart shows the 50 week moving average (exponential) and below it, the percentage that the price is above or below this moving average.

There is a sustained uptrend in the late 1990s but even then, the Disparity Index (DI) offers something, albeit in hindsight. Here are the points of overextension for the DI:

• a – September 1995: The DI reaches 11.3% in September 1995. The overbought condition is unwound and price consolidates for three and a half months
• b – April 1997: The DI peaked in February at 11.5% but the price peak came in April
• c – August 1998: The DI peaked in June at 12.7% but the price peak came in August
• d – March 2001: The DI peaked at 11.5%, with the price
• e – January 2002: The DI peaked at 9.6%, with the price
• f – December 2005: The DI peaked at 8.1%, with the price

Now, the DI stands at 9.4%. DI peaks have come at around 10%, not always exactly with price peaks with little further gain. Even in 1995, at the start of a sustained uptrend, it can take months for price to unwind from overbought. If a long term uptrend is starting now, a pull back towards the 50 week moving average could take many months.

On balance, it is best to close the KUB v NTT position now with a 20% gain overall. Yen weakness trade ideas can be revisited once the currency extension has unwound, if they meet my entry criteria.