Japan: Stock index and currency charts show daily divergences

10 February

My RSI divergence criteria require a weekly divergence for a trade to be justified, which is not the case here. However, it is worth noting these daily RSI divergences.

Topix Index

• A daily RSI divergence has formed, as was the case in March 2012
• The March 2012 divergence led to a two month decline of 20%
• There was also a daily divergence in February 2011 (just before the earthquake – spooky!)
• There were also daily divergences in January 2010 and April 2010, leading to a one month pullback and the high for the index since the 2009 low

US Dollar v Yen

• A daily RSI divergence has formed, as was the case in March 2012
• In March 2012, the end of the rallies in the Topix and the in USD v JPY were quite close
• The fortunes of the Yen have a significant impact on the Topix. With both showing daily RSI divergences, it is time to take profit if you’ve been in these trades

US Dollar v Yen and 50 week moving average

The chart shows the 50 week moving average and below, the percentage that price is above or below that moving average

• The distance from the moving average has peaked at around 11.3% five times since 1995
• On two occasions (b and c), the peak in the currency chart came slightly after the peak in the percentage chart
• In 1995, a time ‘a’, the pullback in the currency chart was quite shallow, although it lasted three months. Pullbacks can be quite shallow when a strong new trend is developing
• There is a chance that the same thing will occur now