Traders' Library Blog

S&P500 Technical Analysis Update: May 30, 2010.

The index fell to a low of 1040.7 on tuesday, followed by an up correction the rest of the week, announced by a hammer pattern in the candle chart. We are now close to the 61.8 Fibonacci retracement, reaching the resistance of the 200 days simple moving average.

We have completed a first impulse wave down, making up the first correction wave (A) down. We are now in the making of correction wave (B) up. I assume consisting of an ABC correction wave. After that we should have the correction wave (C) down

So I expect a further down move after a short term up correction. The SATS2 expert is still red. There is no open long position. Personally I would wait to enter a new manual short position until the end of the short term up correction.

The index finished the long term up move since the price bottom in March 2009 and has started the longer term correction wave. We expect a correction wave 2 of a higher degree, followed by a long term wave 3 up move. This looks like a very optimistic long term view, most probably to good to be true!

Another possibility with the wave {5} now completed is that the index finished a medium term correction wave {A} up and we expect next the medium term correction wave {B} down, with an index remaining above 650 but most probably higher, in the range 900-850. We can also not exclude that we have finished a long term correction wave [B] up and that the index started a long term down move for the wave [C] below the start of the [B] wave or below 650. Wait and see...

I am using a slightly faster SATS2 now on the daily chart. This will give some more entry and exit points, but the advantage is that it will also be faster at the main turning points. We will not trade if it is obvious that we are looking at a "false" SATS2 signal.

Indicators are turning up.

The Trading Week: May 31 - June 4

May 28, 2010 (Allthingsforex.com) – As usual, the U.S. Non-Farm Payrolls will be the dominant economic report for the week ahead, but two interest rate announcements from the Reserve Bank of Australia and the Bank of Canada, along with the main gauges of economic activity and growth from Australia and Canada, could contribute to an interesting start of the final month of Q2 2010 for the Australian and the Canadian Dollars.   

In preparation for the new trading week, here is a list of the Top 10 spotlight economic events that every currency trader should pay attention to. 

1.    EUR- Euro-zone HICP- Harmonized Index of Consumer Prices, the main measure of inflation in the Euro-zone and the European Union’s equivalent to the CPI- Consumer Price Index, Mon., May 31, 5:00 am, ET.

The Euro-zone HICP could confirm the rising inflation trend for the last few months, but despite of higher inflationary pressures, the European Central Bank may still not be in a position to start hiking rates in light of the EU debt crisis. 

2.    CAD- Canada GDP- Gross Domestic Product, the main measure of economic activity and growth, Mon., May 31, 8:30 am, ET.

Issued 24 hours ahead of the Bank of Canada’s interest announcement, the report could keep the CAD supported on expectations of an impending rate hike, especially as the GDP data is expected to show that the Canadian recovery is strong and that the economy continues to grow.

3.    AUD- Reserve Bank of Australia Interest Rate Announcement, Tues., June 1, 12:30 am, ET.

Reserve Bank of Australia has produced six interest rate increases at the last seven meetings, but the AUD could come under pressure if policy makers pause or signal future slowdown in the pace of rate hikes.

4.    CAD- Bank of Canada Interest Rate Announcement, Tues., June 1, 9:00 am, ET.

Strong Canadian economic growth and rising inflation have prompted the Bank of Canada Governor Mark Carney last month to indicate that the bank could consider raising rates from a record low of 0.25 percent as soon as the bank’s June or July meetings.   

Today's All Things Forex Broadcast: The Week Ahead: AUD and CAD in the Spotlight

In the broadcast today: The Week Ahead: AUD and CAD in the Spotlight. In preparation for the new trading week, we list the Top 10 economic events that will move the markets and make the case for why the AUD and CAD will be the currencies to pay close attention to in the week ahead, we analyze the latest trend developments with the USD/CAD and AUD/USD currency pairs, we continue to monitor the price correction of the EUR vs. USD, we examine some of the consensus forecasts for the upcoming economic data, we highlight the market's reaction to the Japanese Consumer Price Index, the U.S. Personal Income and Outlays, and the U.S. Consumer Sentiment, we discuss new forecasts from BNP Paribas, Societe Generale and UBS, and prepare for the trading week ahead.

Live Broadcast from 1:00 pm to 2:00 pm, Eastern Time (18:00 - 19:00 GMT), Monday - Friday.

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Today's All Things Forex Broadcast: Is the EUR Crisis Over?

In the broadcast today: Is the EUR Crisis Over? As the Chinese foreign exchange regulator manages to spook and then calm the markets in the last 24 hours, we ponder if the EUR crisis is over and ask the expert Mr. Cliff Wachtel, Chief Market Analyst at AvaFX, on his view of the EUR, the EU debt crisis and the recent rally in gold prices, we examine the price correction of the EUR as the single currency finds support above last week's low, we follow up on the anticipated strengthening of the CAD, AUD and NZD, we highlight the market's reaction to the report of concerns expressed by the Chinese State Administration of Foreign Exchange, the Japanese and the New Zealand Trade Balance reports, and the U.S. GDP and Jobless Claims, we discuss new forecasts from Societe Generale, BNP Paribas and UBS, and prepare for the trading session ahead.

Live Broadcast from 1:00 pm to 2:00 pm, Eastern Time (18:00 - 19:00 GMT), Monday - Friday.

Listen to the archived Broadcasts

Trading in the Direction of the Major Trend

By: Chuck Hughes

When I am considering taking a short position, I will only will take a short position in a stock or ETF if the Major Trend System for that stock or ETF is on a ‘sell’ signal. Taking short positions in the direction of the major trend helps prevent ‘whipsaw’ trades when counter-trend rallies occur. Preventing whipsaw trades can increase profits, reduce losses and increase the percentage of winning trades.

Trading in the Direction of the Major Trend

•     The 1-Month/20-Month EMA Major Trend System can be used as a filter that only allows trades in the direction of the major trend

•   This helps prevent ‘whipsaw’ trades when counter-trend rallies occur

•   Preventing whipsaw trades can increase profits, reduce losses and increase the percentage of winning trades

 

For more information, please visit www.tradewins.com

FUTURES. STOCKS, FOREX AND OPTIONS TRADING INVOLVES HIGH RISKS WITH THE POTENTIAL FOR SUBSTANTIAL LOSSES.

PLEASE READ. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THERE IS A SUBSTANTIAL RISK OF LOSS TRADING STOCKS AND OPTIONS WITH OR WITHOUT THIS OR ANY OTHER ADVERTISED PRODUCT, SERVICE OR SYSTEM. ALSO, HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

Today's All Things Forex Broadcast: CAD, AUD & NZD- Focusing on the Commodity Currencies

In the broadcast today: CAD, AUD & NZD- Focusing on the Commodity Currencies. With equity indices and commodity prices bouncing off important support levels, we focus on the CAD, AUD and NZD and explore what the future may hold for the commodity currencies, we analyze the latest developments with the USD/CAD, AUD/USD and NZD/USD currency pairs, we examine the prospects for whether the EUR could break lower vs. USD, we highlight the market's reaction to the upbeat worldwide economic growth outlook by the Organization for Economic Cooperation and Development, the German Gfk Consumer Confidence, and the U.S. Durable Goods Orders and New Home Sales, we discuss new forecasts from Citigroup, Bank of New York-Mellon and Mizuho Bank, and prepare for the trading session ahead.

Live Broadcast from 1:00 pm to 2:00 pm, Eastern Time (18:00 - 19:00 GMT), Monday - Friday.

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What The Dollar’s Doing—and Why it’s So Important

By Jeff Greenblatt 

 

Those of you who are familiar with my work know I’m a serious proponent of the time element of technical analysis. In the past few months we’ve done some serious work with the US Dollar. Since the movement of the Dollar is so vital to the movement of the stock market, it makes good sense to really understand what the Dollar is doing.

 

Since the crash, the Dollar and equities have been moving in an inverse fashion. It hasn’t always been that way and at some point in the future it won’t be that way again. But in the past few months the relationship has started to decouple. On any given day, the Dollar will still be up as the stock market is down. But if you’ve noticed both are higher since November. But as I’m writing this, the Dollar is up on a day the market is down.

 

So why is it the market is so frightened of a strong Dollar? In simple terms, the market fears deflation. One of the conditions necessary for a serious deflation is a huge debt burden. As a country, we have it but as consumers we also racked up billions in what became known as the sub prime mess.  The problem is that much of the real estate debt that was put on the books materialized between late 2003 and 2007. As we know it was an easy money era where the Dollar steadily depreciated and was trading in an approximate range of 90 to 81 during that time.

It also turns out that the 90 handle is the 38% retracement of that bear. I’ve done a presentation in Chicago which became my Harnessing Explosive Moves DVD where I did a study of 38% retracements (among others) dating back to the Great Depression. What I found was that in any time frame, once the action takes out 38%, the probability greatly increases for a move up to 61%. In the case of the Dollar that would be 102. It stands to reason that if you financed your house with easy Dollars, it’s going to be much harder to pay it back with a hard Dollar that’s trading over 90.

Free Chapter: Trading Systems Explained

This week’s free chapter comes from Martin Pring’s book Trading Systems Explained:How to Build Reliable Technical Systems.  Enjoy! Check back next week!

 

Chapter 11: The (Almost) Perfect System

Make Sure the System Fits Your Personality

If anyone says they have “The Perfect System” it is a bit of a misnomer since there is no such thing. I use “The (Almost) Perfect System” as the title of this section as a guideline to help you tailor-make the kind of system that can work for you. This is a very important part of the process. Remember, to be successful you need to act on every signal without question and without second-guessing what might happen. In order to arrive at this point, you must be psychologically tuned-in to the system and have total confidence in the outcome. The following are a few guidelines to steer you in that direction.

 

First, the system should be one that trades with your personality. If you are an intraday trader who likes the excitement of the moment, there is no sense in adopting a system that will trigger signals every six months or so. Chart 11-1 shows the Nikkei and the buy and sell signals that resulted from a 2-day MA crossover with no margin. This just happened to be the best-optimized timespan from a test ranging from 2 to 65 days as shown in Table 11-1. You will also notice a 17 percent drawdown in 1997. While we can say the system is successful based on these limited results, it is not for everybody. Many people just do not have time to devote to such trading, nor do they relish the constant excitement and emotional drain that its execution might involve. In this test, 222 signals, or one every 4 days, were triggered just based on going long. You also have to take your lifestyle into account. Those with a full time job should not be trading on a day-to-day basis. Do your homework in the evenings, or better still, the weekends, and plan your trades using systems based on daily or weekly closes. This way you can do a good day’s work without the distraction of entering new positions or being stopped out. It is impossible to concentrate on your job and the market at the same time. If you try to do both, one or both will slip.

  

 

Today's All Things Forex Broadcast: Why the CAD Still Makes Sense

In the broadcast today: Why the CAD Still Makes Sense. As another day of investors' uncertainty and risk aversion hits the markets, we look beyond the doom and gloom and make the case for why the CAD still makes sense as one of the best candidates to take advantage of future improvements in market sentiment and economic conditions, we monitor the renewed weakness of the EUR vs. USD and other majors, we examine the drop in the GBP despite of the higher U.K. economic growth report, we highlight the market's reaction to the IMF warning on the banking system in Spain, the U.K. GDP, and the U.S. Consumer Confidence, we discuss new forecasts from Morgan Stanley, Bank of New York-Mellon and Credit Suisse, and prepare for the trading session ahead.

Live Broadcast from 1:00 pm to 2:00 pm, Eastern Time (18:00 - 19:00 GMT), Monday - Friday.

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Today's All Things Forex Broadcast: Is the EUR Becoming the New Carry Trade Funding Currency?

In the broadcast today: Is the EUR Becoming the New Carry Trade Funding Currency? In the beginning of the new trading week, we continue to focus on the EUR and examine the potential for the EUR to become one of the preferred funding currencies for carry trades and which major currencies could be the beneficiaries of that, we analyze the latest trend developments with the EUR/USD, EUR/GBP, EUR/CAD and EUR/NZD currency pairs, we note some of the uncertainties surrounding the GBP, we explore what is behind this morning's strengthening of the USD and other majors vs. JPY, we follow up on the commodity currencies: CAD, AUD and NZD, we highlight the market's reaction to the U.S. Existing Home Sales, we discuss new forecasts from Bank of New York-Mellon, JPMorgan-Chase and UBS, and prepare for the trading session ahead.

Live Broadcast from 1:00 pm to 2:00 pm, Eastern Time (18:00 - 19:00 GMT), Monday - Friday.

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The Trading Week: May 24 - May 28

May 23, 2010 (Allthingsforex.com) – The main gauge of economic activity and growth in the world’s largest economy, along with the U.S. consumer and housing market data, will take the center stage in the week ahead that could provide further evidence of investors’ willingness to “sell in May and go away”.  

In preparation for the new trading week, here is a look at the most important economic events that every currency trader should pay attention to.

Monday, May 24 will begin with the Japanese All Industries Index of activity in all sectors of the economy, at 12:30 am, ET, and the Bank of Japan Monthly Bulletin on monetary policy, inflation and economic conditions, at 1:00 am, ET.

The first spotlight event of the week- the U.S. Existing Home Sales, the main gauge of the condition of the U.S. housing market measuring the number of closed sales of previously constructed homes, condominiums and co-ops, will be released at 10:00 am, ET.

As home buyers made the final push trying to take advantage of the tax credit before the April 30, 2010 deadline, the existing home sales could rise to 5.65 M in April from 5.4 M homes sold in March.

The light on economic data day will conclude with the New Zealand Inflation Expectations survey on the inflation outlook of business executives, at 11:00 pm, ET.

Learning Video: GCI trading signals update week 11

This is video number 10 of the life swing trading example using the stock GCI. Idea is that you follow the trade evolution systematically learning to apply technical analysis techniques. Please note, this is not an invitation to trade this stock, information given is to be used for training purposes only.

I concluded 3 short trades using the hourly and the 5 minute charts. The short trade based on the daily chart is still open. The total profit is now up to more than 130% in less than 3 month's time (taking into account the 20% paper result in the daily chart). 

Sylvain Vervoort
http://stocata.org/

S&P500 Technical Analysis Update: May 22, 2010.

The index fell to a low of 1056 this week, recovering part of the down move on friday. With this we reached the 423.6% Fibonacci target. As mentioned the previous week, I would look for closing the manual short position opened April 30 at 1200.7 when the index would drop in the range 1070-1060.

Friday the index went below 1060. So, I closed this short position at 1060. The result is taken into account in the trading results table.

There is still room for a further down move, but probably only after a short term up correction. But, it is certainly also possible that the index will make another low the coming week. I would stay out for more clarity.

The previous week on wednesday we got a new green SATS2 candle. Since it was exactly against the 20- and 50 days moving average and close to resistance, we decided to wait for the next day. the previous Thursday the up move was not confirmed and we got a black candle and tweezer tops. Thursday last week, SATS2 turned red again.

The index finished the long term up move since the price bottom in March 2009 and has started the longer term correction wave. We expect a correction wave 2 of a higher degree, followed by a long term wave 3 up move. This looks like a very optimistic long term view, most probably to good to be true!

Another possibility with the wave {5} now completed is that the index finished a medium term correction wave {A} up and we expect next the medium term correction wave {B} down, with an index remaining above 650 but most probably higher, in the range 900-850. We can also not exclude that we have finished a long term correction wave [B] up and that the index started a long term down move for the wave [C] below the start of the [B] wave or below 650. Wait and see...

I am using a slightly faster SATS2 now on the daily chart. This will give some more entry and exit points, but the advantage is that it will also be faster at the main turning points. We will not trade if it is obvious that we are looking at a "false" SATS2 signal.

Indicators are moving down.

For FOREX traders, I keep here  FOREX EUR/USD updated charts.

Today's All Things Forex Broadcast: Is the USD "Flight to Quality" Trade Still Strong?

In the broadcast today: Is the USD "Flight to Quality" Trade Still Strong? With the markets ending a week-long losing streak and the EUR correcting losses vs. USD, we ponder whether it is too early to call the end of the "flight to safety" trade into USD and JPY, we analyze the latest trend developments with the EUR/USD and USD/JPY currency pairs, we follow up on the anticipated strengthening of the CAD as a result of rising inflationary pressures in Canada, we list the Top 10 spotlight economic events that will move the markets in the week ahead and explore what the new trading week may have in store for the currency majors, we examine some of the consensus forecasts for the upcoming economic data, we highlight the market's reaction to the Bank of Japan interest rate announcement, the German IFO Business Climate Index, and the Canadian CPI, we discuss new forecasts from Citigroup and HSBC, and prepare for the trading week ahead.

Live Broadcast from 1:00 pm to 2:00 pm, Eastern Time (18:00 - 19:00 GMT), Monday - Friday.

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Time Tested Trading Tips... May 21.

An Excerpt from the Timely Trades Letter.

The large drop in the market on Thursday  was interesting, but the question is always what does it mean, and what is likely to happen next. In order to get some insight into this question I ran a test that looked back over the last three years to see how many times the market was down at least 80 points, and what would happen if I had bought at the opening the next day. The table to the left shows that during the last three years the market was down at least 80 points 16 times. If you bought the market the next day, and sold the following day, you would have been profitable eight times and shown eight losses. Essentially being down more than 80 points has not been predictive of whether or not the market will be up or down in the short run. When the market shows strong down days, like we saw on Thursday, the news media is full of stories about major corrections and the like. The news media’s job is to sell commercials, advertising space, and not necessarily to provide actionable information for traders. The market’s behavior over the last three years indicates that in the short-term it is just as likely to bounce after an 80 point drop as it is to continue going down. Based on this data we need to look elsewhere to determine an effective trading plan.

Extensions below the lower Bollinger band are unusual, as you can quickly verify by just scanning a NASDAQ chart for the last couple of years. The Bollinger bands contain the vast majority of the price action, and movements outside the band rarely last more than two or three days. The market typically moves back inside the lower Bollinger band by either moving sideways for a few days, or bouncing. I ran another test that bought the market every time the NASDAQ closed at least 10 points below the lower Bollinger band. I ran this test over the last 36 months using a one-day holding period to determine whether or not closing below the lower band was predictive of short-term behavior. The results, as shown...

Free Webinar: Option Strategies for Uncertain Markets

Three Option Strategies for Uncertain Market Environments Webinar

Who: Todd Salamone, Senior Vice President for Research at Schaeffer's Investment Research

What: Free Exclusive Webinar

When: Tuesday, June 8, 2010 | 1:00 PM EST

Where: Click here to register!

Options trading offers several advantages over stock trading. First, options cost a fraction of what it costs to buy a stock. Second, options offer leverage, the ability to turn a small percentage gain in the underlying stock into a large percentage in the option trade. Finally, option-selling strategies let you collect money up-front. If the stock performs as you expect, you keep it. Todd will discuss:

• Credit spreads: sell an out-of-money option, buy a further out-of-money option for a net credit to your account. If you're bullish, you're using puts; if you're bearish, you're using calls. Goal: all options within spread expire worthless.
• Selling Iron Condors: This is basically a turbo-charged credit spread. Simultaneous sale of a put credit spread AND call credit spread, same month, different strike prices. Again, your goal is for all options within spread to expire worthless.
• Or perhaps you just want to sleep better at night AND be in position to make healthy profits. Todd will explain Pairs Trading, in which you hedge your call option with a put option on another stock or ETF in the same sector.

Hurry and sign up!  Space is limited!

Today's All Things Forex Broadcast: Will the EUR Decline Further after the Correction?

In the broadcast today: Will the EUR Decline Further after the Correction? In a market environment still filled with uncertainty and non-existent appetite for risk, we examine the recent price correction of the EUR and explore the potential for further mid- and long-term losses of the 16-nation currency against the USD, we continue to monitor the sell-off in the JPY pairs, we analyze the deteriorating technical and fundamental background of the AUD, we note the drop in commodities and follow up on the latest trend developments with the CAD and NZD, we highlight the market's reaction to the FOMC Meeting Minutes, the Japanese GDP, and the U.S. Jobless Claims and Leading Indicators, we discuss new forecasts from Credit Suisse, Royal Bank of Scotland, BNP Paribas and UBS, and prepare for the trading session ahead.

Live Broadcast from 1:00 pm to 2:00 pm, Eastern Time (18:00 - 19:00 GMT), Monday - Friday.

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Why Does Trend Following Work?

By: Russell Sands

Why Does Trend Following Work?

1. It is a statistically valid concept to have a "bias" in the otherwise random drift or a series of numbers.
2. It is as simple as Newton's Law of Physics, a body in motion tends to stay in motion, a body at rest tends to stay at rest. A trend is nothing more than a momentum in a series of price movements.'
3. The markets only allow a few people to make money, and the majority of traders, regardless of what they might think, or say, do not know how to do it correctly (trend following). 
4. The markets exhibit maximum perversity. This means that the trends will only come about after most of the people have lost most of their money and have already given up in disgust. Then, when they do come, and nobody believes it anymore, eventually these people have to start chasing the market, and that's what makes the trend continue.
   
   Watch this Russell Sands movie as he discusses trend following.

For more information, please visit www.tradewins.com

FUTURES, STOCKS, BONDS, CURRENCY AND OPTIONS TRADING INVOLVES HIGH RISKS WITH THE POTENTIAL FOR SUBSTANTIAL LOSSES.

PLEASE READ. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THERE IS A SUBSTANTIAL RISK OF LOSS TRADING STOCKS AND OPTIONS WITH OR WITHOUT THIS OR ANY OTHER ADVERTISED PRODUCT, SERVICE OR SYSTEM. ALSO, HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

Today's All Things Forex Broadcast: What's ahead for the JPY and the USD?

In the broadcast today: What's ahead for the JPY and the USD? As investors may have decided to "sell in May and go away", we examine the risk averse market environment and how the "safe heaven" trade continues to favor the USD and the JPY, we analyze the latest developments with the USD/JPY and some of the major Yen-related currency pairs, we note the Euro's bounce off the new 4-year low against the USD, we explore this morning's massive sell-off in the higher-yielding commodity currencies- AUD and NZD, we highlight the market's reaction to the Reserve Bank of New Zealand Financial Stability Report, the Bank of England Meeting Minutes, and the U.S. Consumer Price Index, we discuss new forecasts from Goldman Sachs and BNP Paribas, and prepare for the trading session ahead.

Live Broadcast from 1:00 pm to 2:00 pm, Eastern Time (18:00 - 19:00 GMT), Monday - Friday.

Listen to the archived Broadcasts

3 Ways To Play Sovereign Debt Crisis

3 Ways To Play Sovereign Debt Crisis

As the sovereign debt crisis continues to take its toll on Europe and fails to linger away, currencies continue to deteriorate, government bond yields continue to rise and stock markets remain volatile.  Depsite the fear that this crisis has brought on, there are four ways one can play it.

Japan

Many believe that the next country to be hit by the crisis is Japan.  Traditionally, the Japanese Yen and Japanese bonds have been a safe haven in times of uncertainty; however, this is no longer the case.   According to a study conducted by Moody’s, Japanese government debt is estimated to be more than 200 percent of the nation’s gross domestic product (GDP), which puts limitations on the government’s ability to spend and implement additional fiscal stimulus plans to stimulate a much battered economy. 

In regards to interest rates, the Bank of Japan needs to keep interest rates at or close to zero and continue its asset-purchase program to curb the effects of deflation and worsen the overall health of its economy.  To make things even more challenging in the Asian nation, Japan’s demographics are highly unfavorable.  The Japanese population is aging and shrinking, which eventually will result in the labor force retiring and cashing in on government bonds, which is likely to result in the Japanese government borrowing more at higher yields from more prospering countries.  

With the future looking relatively gloomy for Japan, some possible plays include the ProShares UltraShort MSCI Japan (EWV), which aims to seek twice the inverse daily performance of the MSCI Japan index.  A second play includes the ProShares UltraShort Yen (YCS), which allows one to bet against the Japanese Yen.  EWV closed at $47.29 on Tuesday and YCS closed at $20.65 on Tuesday.