Wednesday, December 21, 2022

How the BOJ disturbed my vacation

Mid-week market update: I know that I said that I wouldn't publish a mid-week market update during my vacation, but the actions of the BOJ managed to disturb my R&R time, so this is just a brief note.

The BOJ's announcement of a retreat from yield curve control by allowing the 10-year JGB yield to rise from 0.25% to 0.50% shocked markets. The widowmaker trade of shorting JGBs finally worked, but it happened when a lot of traders had shut down their books and went on holidays. The move cratered the JGB market, pulled down other major bond markets around the world, and sent the Japanese stock market reeling. Other equities markets fell in sympathy, but the contagion effect was limited as the bond rout steadied and stock markets rebounded.

My usually reliable S&P 500 Intermediate-Term Breadth Momentum Oscillator (ITBM) had flashed a sell signal on December 7, 2022 when its 14-day RSI recycled from overbought to neutral. I wrote that a reasonable exit strategy is to either wait for the 14-day RSI or the Zweig Breadth Thrust Indicator to become oversold. Coincidentally, both were triggered just before the BOJ announcement.

The full post can be found here.

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