wmeubank@ocp.kcmo.com
IRA EPSTEIN & COMPANY
223 West Jackson, 7th Floor, Chicago, Illinois
(December 15, 1997) CURRENCIES: JAPANESE YEN–The March contract of the Japanese Yen is in a downtrend. This market has gone from the 8400 level to the 7800 level in about six weeks. The question is–Will this market keep going south, at a steady pace, or will the market experience a retracement of some sort? The value on the lower Bollinger Band is 7720, daily bar charts remain under the 18-day moving average of closes. I think this market could go lower.
FUNDAMENTALLY–Japan's economy remains insipid, or, in layman's terms, an out right dog. What could give this economy a boost, especially in the short term? Part of their currency problem results from the currency crisis in the rest of Asia. This is a persistent risk because, in my opinion, no measurable improvements have been made recently.
Typically, my experience has shown that Japanese investors unload their holdings in U.S. bonds and stocks when prices drop and they empirically turn to European investments.
RECOMMENDATIONS–Under the current scenario, I believe you should trade this market with options. Specifically a bear put spread or (vertical spread) in the March yen could be initiated. A bear put spread is the equivalent to a short the market by buying a put and selling a lower put, with the hope that the market will move down. March options expire March 6th, which leaves near 70 days for this trade.
Kyle Graham
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