What Do You Yen For ?

Over the last couple of weeks, there has been a lot of talk about how the U.S. stock market cratered 'because of' the blow-up of the Yen carry trade - not because of the inherent Elliott Wave count of the U.S. market. Almost all financial news media outlets carried the former story but not the latter (of course). But did / does the Japanese Yen have an Elliott Wave count? We purport to suggest that it does, too, as the monthly chart of the Yen, below shows.

Yen (6J) Futures - Monthly - Zigzag

Note, very simply from its failed ending diagonal high in 2011, the Yen has traced out a simple Elliott Wave 5-3-5 sequence, otherwise shown as Intermediate (A), (B), (C) - a zigzag. And this chart is instructive in a lot of ways. 

OK. Maybe you counted the five waves down to (A) from 2011 to 2015. OK. But then would you have had the extreme patience required to count out a six-year triangle before resuming a (C) wave decline. Really? Six-years?! You would have waited and waited and waited some more before saying, "the next down break must occur."? Um, with my familiarity with readers here, I don't think so. Traders tend to be an impatient lot as it is. And yet, Neely suggests a wave corrective to a motive wave usually takes more time than the motive wave. And here you see a clear example of that in force.

So, what's next? That's all you really care about, right? Well, we are showing the wave as either having finished or having one more much smaller down wave to go. Let's have a look at the weekly chart. Just before we do that notice that the down wave might end at mid-channel of a parallel, above, which is shown, and the EWO is currently green and rising.

Yen (6J) Futures - Weekly - Potential Contracting E-D Ver #1

The above weekly chart shows a less proportional - but still legal - way for the Intermediate (C) way to have ended as an ending diagonal. There is, indeed, a lower low for Minor 3. The issue is that Minor 3 only 'ticks below' the prior low such that 3 seems much shorter than 1.  But the following weekly chart also shows a way the diagonal count can continue for a bit.

Yen (6J) Futures - Weekly - Potential Contracting E-D Ver #2

Above you see the larger diagonal possibility which makes Minor 3 more similar in length to Minor 1. And although the measurement is not included for chart clarity, it shows that wave 4 is 62% of wave 2 which is a very proportional measure in a diagonal. Readers of this blog should independently confirm that measurement. This chart also shows the measurement of 0.0075370 above which the continuing diagonal would invalidate because wave 4 should not become longer than wave 2. Note, too, that the Elliott Wave Oscillator has turned back above the zero line - either the sign of a 4th wave, or the turn, up, for good.

Further it shows that wave 5 of a (C) wave diagonal can fail. This is because the diagonal would be an ending diagonal, and not a leading one.

So now, let's look at the daily chart.

Here we see three likely waves up with c/iii being almost 1.618 times longer than wave a/i. You also see a corrective looking down wave which is at the junction of a rising trend line from 0 - b/ii and from a declining overhead trend line. And you see price turning up from this lower trend line. Further, you will note that price has come down to the 18-day SMA in red, "the line in the sand".

From here, The Principle of Equivalence says we are in the same position as the equity market. If price rises and creates an impulse, we must accept its implications. And, yet, if price falls, we know to where it might fall and what it's limits might be. We also have a pretty clear idea of invalidation levels and overlaps that can be watched, especially above. Right, now a fourth wave is not overlapping.

In any event, the Yen carry trade is for the uber-wealthy that have access to the banking and trading resources to carry it off. It is difficult for smaller players to participate in (except as usual, in trying to ride the coattails of the big players).

Still, a couple of days ago no less than Jamie Daimon expressed a Yen that the wealthy be taxed more, echoing the concerns of Warren Buffett. You can read the story at this LINK. I personally concur for a lot of reasons.

First, is the example above. If the very wealthy can participate in a Yen carry trade like above 'just because of their size' and the smaller investor is at a huge disadvantage, then shouldn't increased taxes on the wealthy's profits be one manner of off-setting that purely positional advantage? Can't we level the playing field a bit? I mean they already have large algorithms, and news-reading computers, etc. How much more of an advantage do they need?

Second, by definition, wealthy people have their lower sections of Maslow's hierarchy (safety, security, food, shelter, etc.) taken care of by virtue of their money. In any society which seeks to progress, shouldn't these individuals be the ones who more help advance everyone's state in the society? No, I'm not saying to any extreme level. Just more so. Or at least proportionately so. We all know there are still corporations that pay zero taxes. That is, they give back nothing to the society they are allowed to operate in - except jobs & products, of course. But then, either all corporations pay no taxes should we allow that in the future, or they do so proportionately, and not just by legal legerdemain.

And what would the society do with such taxes - just hand it over to the poor & needy? Well, maybe some of it - but we know there can be some disincentives to behavior if that is taken too far. No, what about devoting much of it to infrastructure improvement, to improvements all can benefit from? Chief among these must be clean water and clean air to keep health care costs down.

For example, just imagine if a good use of A-I (whenever it fully comes on board) is not just to out-game the enemy in war (real or otherwise). But what if A-I could actually control your traffic lights in real time so that your car used even less gasoline or electricity, than sitting idly by at an intersection with no traffic coming from the cross-directions. This could help reduce the level of pollution and frustration for nearly everyone without implementing what looks like "handouts".

I hope Mr. Daimon and Mr. Buffett can get some further traction on this idea. Because, after all, they are some of wealthiest people, with a Yen to pay more taxes. Enough of the pun - they are literally begging that society increase their taxes. I say we just take them up on it. What say you?

Have an excellent rest of the weekend & start to the week.

TraderJoe