Trading Diary

http://www.boj.or.jp/en/theme/seisaku/mpm_unei/giji/index.htm

This link will take you to the Minutes of the Monetary Policy Meetings of bank of japan. You can download the pdf files. The pdf files are a good read (a must read) on the current world financial scenario and the current economic and financial condition of USA .

For the meeting on jan17-18 the minutes will be published on feb 26 likewise for other meeting also.

Does the bullish and bearish tone of the Minutes on liquidity (carry trade) have a bearing on Dow???.

from  feb 26 when the Minutes are published to the next publication of march 26 DOW index has lost -167 points. feb 26 tone is bearish with BOJ increasing rate by .25 on feb 20 meeting. 

From march 26 minutes to may 7 minutes DOW  has gained +784 points. Tone bullish.

From may 7 minutes to may 22 minutes DOW has gained +278. Tone bullish

From may 22 minutes to june 20 minutes DOW gained +92 .tone is neutral.

From june 20 to july 18 minutes DOW has gained +319. Tone bullish.

From july 18 minutes to present DOW has lost -597. Tone is bearish and the meeting on june 14 very volatile with one member openly dissenting for a immediate rate hike by .25.

The photo above is the monetary meeting of Bank of Japan and according to me they sit to decide the future of financial world order.

I first commented on my favorite 54 and 108 Simple Moving Average on June 11 and 13 th.The above chart of Dow cross Yen index shows that the chart is having a good support at 108 sma after gaping down from support at 54 sma.

In 1968, George Lindsay, a master technical analyst, found a repetitive chart pattern that he had specifically found at the end of long sustained bull markets. He called his pattern “Three Peaks and a Domed House”.Here the weekly chart of dow is given along with the classic pattern  of George Lindsay.The two chart pattern show striking similarity.While i am not an expert in this pattern the readers may dig for more research.

$xbd is my best indicator for the general health of the market since the market is fuelled by liquidity from word currency funds.before the feb 27 selloff $ xbd had a big decline and for this decline also $xbd showed indications . The chart shows the amazing similarity between the two events as shown in the charts. Hope this similarity holds for the coming days also…The second  charts shows the level the  broker index has reached vs Dow. Technically $xbd is stable

New Zealand dollar is one the important pair in carry trade.On July 26 the news hit the wire that RBNZ raised the OCR to 8.25% from 8.0%. . In the statement, the bank noted that “…we think the four successive OCR increases we have delivered will be sufficient to contain inflation”.

 A 7.75% differential exists between New Zealand and Japan and a full 3% difference with the US overnight rates,which should make NZD attractive for carry trade and selling of US bonds to divert to NZD is a strong possibility. The New Zealand dollar rose 22.1 percent against the US dollar in the year to June and has hit record levels since the local currency was freely floated in 1985. Last month, New Zealand made news worldwide when the Reserve Bank of New Zealand intervened in the foreign-exchange market to sell the New Zealand dollar. Confronted by rising pressure from the strong kiwi dollar, the central bank decided on June 11 to stage its first foreign-exchange intervention since the currency was floated in 1985. Japanese investors, earning almost nothing in yen, have poured money into New Zealand assets. Other investors have also taken advantage of the “carry trade”, allowing them to borrow at low interest rates in yen and reinvest the amount at higher rates overseas. Warren Buffett – was reported to have made about NZ$130 million just by speculating on the currency from 2003 to 2006.The other pair of the  carry trade The yen has become stronger after the BOJ meeting.Minutes of the Monetary Policy Meeting of Bank pf japan on June 14 and 15, 2007 has given jitters to the carry traders fuelling the word stock markets. The minutes say “They also concurred that their basic thinking remained unchanged on the monetarypolicy stance for the immediate future: while confirming that Japan’s economy remainedlikely to follow a path of sustainable growth under price stability in light of the“understanding of medium- to long-term price stability” and assessing relevant risk factors,the Bank would adjust the level of interest rates gradually in accordance with improvements in the economic and price situation. The expectation of a rate increase by 25 bps by top traders is very high for the next meeting on  22-23 Aug.

The Bank of Japan thus far, has raised rates only twice since 2002, in July 2006 and in Feb-07, each time by 25 bps. It is currently expected to raise rates (by 25 bps) in its next meeting, which is on 22-23 Aug. If that is also passed, then a Sept-07 hike would be very likely.

Another important wording is the assessment of BOJ that the rate increase will cause financial instability.

 “In order to prevent financial markets from becomingunstable due to speculation regarding the future conduct of monetary policy, thegovernment would also like the Bank to clearly explain its assessment of economicactivity and prices and its thinking on the future conduct of monetary policy to market

participants and the public.”

The recent sell off is due to the expectation of the market of the rate increase and yen has rosen against the  world currency since the publication of the minutes.

Expect the market to be volatile and selling of stocks to buy yen in anticipation of rate hike ,but by the the time the actual rate increase hit the street the market should have stabilized.

NZD/USD has shoot upwards to 0.780 which is negative news for Dow.Bank of America Corp strategist has raised their  forecast for the Standard & Poor’s 500 Index which is postive news for Dow. Dow will shoot up to +100 level and by 2pm expect it to fall with a thud.