The massive amount of buying pressure that we had seen has gotten overdone, and therefore a pullback would be expected. Because of this, I do believe that we have further to go to the downside, perhaps a move down to the ¥120 level.
Having said that, it is not necessarily mean that I am willing to short this market, rather I am waiting to see whether or not we get any type of support underneath after a pullback. After all, the markets will continue to be driven by interest rate differentials, which have exploded recently, due to the 10-year note being sold off so aggressively. As that has been the case, it the very likely that the market will continue to follow the 10-year note on an inverted chart.
A breakdown below the bottom of the candlestick for the trading session on Wednesday will open up a move down to the ¥120 level, possibly even as low as the ¥118 level. The 50 Day EMA is racing towards that area, and therefore it looks as if the market will likely see value hunters in that area. Keep an eye on the longer-term chart, as the ¥125 level is a major resistance barrier on the monthly charts. With that in mind, you should understand that breaking above that level would be a major breakout and could send this market much higher over the longer term.
The market has been so parabolic that this pullback is necessary. The market continues to be very noisy, so you need to be cautious with your position size, but I do not like the idea of buying it all the way appear. I will be paying attention to the weekly chart, perhaps for a signal to short, or perhaps for a signal to turn around and start buying again. At this point, I think that caution is the better part of valor and should be respected as such. Ultimately, this is a market that needs to be approached with caution, as once we get overdone like this, the volatility gets to be very dangerous and can ruin accounts.
