It’s very difficult to trade other than to simply “chase the market.”

• The NASDAQ 100 Index rallied yet again on Monday to show that the markets are ready to continue ripping toward the 200-day EMA.
• Fundamentally, there’s no reason whatsoever that the NASDAQ 100 should be powering higher the way it is, but at the end of the day, the markets have changed so much over the last 14 years that they have lost grip with economic reality.
• This should not be a surprise, because the Federal Reserve has caused this problem.

Plenty of Liquidity

Markets run on liquidity and nothing else. As long as there is going to be plenty of liquidity, people throw money at risk assets because there’s nothing else to do. Bond markets don’t pay much in yield, so they have to find a way to make money. They do this by purchasing some of the worst stocks on the planet, in what would be “good times”, and go back to the major companies in times that are a bit riskier.

Keep in mind that the NASDAQ 100 is controlled by about 7 major companies, so this is the same thing as making a bet on Tesla, Microsoft, Amazon, and a few others. This is not 100 stocks, it’s more like 7 stocks and 93 other things to look at. As long as money is going to go flying into those big companies, this market will continue higher.

Ignore the fact that the world is going into a recession, ignore the fact that a lot of pundits can pull out charts showing you just how miserable economic conditions are. Until Wall Street gets it through its head that there is a serious risk, we will continue to see more of this mentality play out. Because of this, it’s very difficult to trade other than to simply “chase the market.” In that scenario, you need to be very cautious about your position size, because someday somebody is going to look around and realize how bad the true economy is. If the Federal Reserve is in fact going to have to fight an 8.5% year-over-year inflation situation, that’s not good for stocks. However, Wall Street does not seem to know that right now, so you can’t fight the tape. It’s very likely we go looking to reach the 14,250 level over the next several days.

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The US dollar has rallied a bit against the Japanese yen during the trading session on Monday, but it should be noted that it was Juneteenth in the United States, so liquidity may have been a bit of an issue. Regardless, we have seen another attempt to break above the ¥135.50 level, and eventually, it looks as if we will do so.

It’s worth noting that the Friday candlestick was extraordinarily bullish, and of course, the Bank of Japan decided to reiterate its pledge to drive interest rates down. As long that’s going to be the case, it remains the only major central bank involved in quantitative easing, meaning that the Japanese yen is going to get absolutely eviscerated. You can see this in multiple currency pairs, not just this one. However, it’s worth noting that the US dollar is the benchmark on which all currencies are measured, so this shows you that not only will this pair continue to look strong, but so will many other ones such as the GBP/JPY, CHF/JPY, and so on.

The ¥132 level should now offer a significant amount of support, so I think pullbacks of that area will be looked at as value. In fact, that’s how I think most people will be looking at this currency pair, one that you should be buying on the dips. The market breaking above the ¥135.50 level opens up the possibility of another rally to reach the ¥137.50 level. After that, the 140 and level is almost certainly going to be a potential destination.

On the downside, we would need to break through the ¥126 level before sellers would start to convince me that they are taking over. The only thing that tells me when this is possible will be when the Bank of Japan finally starts to let rates rise, or the Federal Reserve pivots to a different monetary policy regime. Until that changes, I just do not see a situation where we have a significant selloff, even if we do have a major “risk-off move” in the financial markets. (It should be said that if we do get one of those moves, other pairs such as GBP/JPY might get pounded.) “Steady as she goes” will more likely than not be the way this market behaves over the next several months.