The landslide in the YEN, seen here in the ETF (FXY), has created a picture. RSI started to diverge off the lows as the prices pegged new gap down days to post lows on a daily bar for the past 2 weeks. This type of extreme bearish action, coupled with gaps, can create an opportunity for those traders that look for divergence action in technical indicators as compared to the price action in the stock or ETF.
I have traded long and short FXY but mostly long and was able to keep my head above water even in this nasty sell off. So as I watched the action with a magnifying glass the past 2 days, I see what I want to see. Positive divergence in the RSI indicator has show up. This gave me a clue to potential short-term lows for my long side trade. I got lucky the other day and bought FXY near the lows but based on this action, added some today as positive divergence shows it face. I’ll use this as swing trade to scale out towards 112-113.5 ranges. My position is so small in these types of strategies that even lower lows probably wont shake me out too soon. If I’m wrong and it fails a new low, I’ll kick out 1/2 my trade and re-evaluate the RSI position.
The chart below shows the price bars matched to the RSI with price slopping down hard and RSI firming up the lower lows to create a slight up-slope.
Also, the USDJPY is showing some signs of a short-term top and can trigger some aggressive profit taking at any point the YEN is firming up.
Disclaimer: The material provided is purely for educational purposes only. No information contained herein is a solicitation or offer to buy or sell any securities. The information provided is in no way investment advice from Nick Pirraglia, TradersThinkTank or any other contributed content. The opinions, analysis and commentary on this website are purely the subjective views of the author. Nick Pirraglia is not a Registered Investment Advisor and under no circumstances should any content from this site be used as investment advice, recommendations, or trading advice. Please consult your financial advisor prior to making investment decisions.