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Stocks mixed as Bank of Japan news is digested

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After a lower open, stocks are now showing some rather mixed results as the MARKET digests the Bank of Japan's decision to buy U.S. dollars in an attempt to abate the recent strength of the Yen versus the U.S. dollar. This has my e-mail flooded with questions regarding how this might impact various stocks going forward.

One excellent question was how it would impact Japan stocks as the strength in the Yen has provided bullishness for stocks in that region of the world.

Over the past couple of months, I turned bullish on shares of Sony (NYSE:SNE) $58.82 +1.32% as the stock broke above the $50 level and profiled some longer-term call options in the stock at the $50 strike. Just a couple of session's ago, I mentioned the Japan Ishares (AMEX:EWJ) $9.09 +2.13% as this group of stocks broke above its neckline of what looks to be a reverse head and shoulders pattern.

When I turned the radio on this morning and was listening to my favorite stock market show, I was somewhat surprised by the Bank of Japan's actions, and I immediately thought it might have a negative impact on my previous observations of bullishness for Sony (SNE) and the Japan Ishares (AMEX:EWJ). However, today's reaction looks to be bullish.

In the past, I've learned that scenarios (bullish and bearish) are important for traders to have on hand regarding the securities they trade. But what matters most is how the MARKET responds and votes with its own money and eventually drives price action.

Playing the role of "devil's advocate" is something most traders do. It has the trader posing questions and then attempting to come up with possible answers to those question, where the answers are then found in the charts.

Over the past couple of days, I've gotten some very good e-mail from traders/investors on why a bullish trade in the Japan Ishares (AMEX:EWJ) didn't make sense based on some very good reasoning.

Later today, I'll play "devil's advocate" with subscriber e-mail and we'll build some bullish and bearish scenarios on some of these e-mails. Right now, there appears to be a lot of conviction behind some of these e-mails, yet there are some potential flaws (I think) to the thoughts. However, we will outline some things to be looking for in the days/weeks/months ahead.

Today's move by the Bank of Japan has undoubtedly created some surprises to major institutions and you can bet that there will be some adjustments to their trading/investing scenarios.

Right now, the MARKET is in the process of digesting and adjusting to these events. It's not a "cut in stone" type of reaction either. Let's face it. The SMARTEST money in the MARKET is/has already been on the right side of today's events and had perhaps accounted for today's Bank of Japan move.

Maybe, just maybe, some subscriber holding Japan-based Sony (SNE) and even the Japan Ishares (AMEX:EWJ) have a portion of their account on the right side of things too.

Earlier this morning, prior to the market's open, I thought that some of the home builders might see bullishness as Treasury YIELDS fell, thus perhaps providing some stimulus to that sector should mortgage rates decline as YIELDS fell.

While we did see a pop in the Dow Jones US Home Construction Index (DJUSHB) 369.25 -0.05%, that "pop" has seen a pullback to unchanged levels. This action hints that there is still some thinking being done and not an overly bullish response to such thought, almost as if the MARKET is saying ... "not so soon" on the thought of lower YIELDS in the Treasury market or at least lower YIELD creating lower mortgage rates that might provide a further catalyst to the home builders.

As long as trader/investors lay out a disciplined plan with stops and targets and follows that plan, they should do just fine.

We'll continue this discussion in the next update.

Jeff Bailey
Senior Market Technician
Option Investor

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