June 3-8 2007 Yen Correction

As expected most of our trades took a correction earlier in the week with the Yen moving closely with the Equity markets. The markets took a good beating this week with only Friday having a triple digit day on the positive side. It was a good preview of how some of the basket collections would perform had a full scale unwind occured. When the Yen strengthens even the pairs which we wouldn't think would be affected, moved against us significantly.

The 6 pair basket at 3% risk went as low as -105 on the negative side, or approximately -3% equity drawdown using a test accoun. This is still not all that bad. Some of these pairs had 3 positions averaged in. A full scale drop like that of Feb 2007 this 3% could have probably been 10% realistically. By friday we saw a swing to the positive side, with the Pound lagging behind the other pairs. Next week I expect the trend to continue and even if the Yen stalls at the 122.00 level, our 4 and 6 pairs will profit from the positions we scaled in at lower prices.

So to summarize:

• 4Bonz Basket at 3% per trade was the top performer. It was the quickest to recover from the downturn, and during the yen strengthening, the drawdown was satisfactory, with proper money management.
• The JCMac 6 pair at 1.5% equity limit was also satisfactory, nearly hitting -3% drawdown for the week, but coming back to -1%. Much more affected by Yen strengthening, so this has to be scaled properly, and a good idea might be to hedge against pairs on the drop.
  

This is an interesting experiment that must be watched and tested. These collections will perform flawlessly in a strong market, weak Yen environment. We can test our risk tollerence when there are weeks when it corrects and prepare for a full scale unwind should it occur. Interesting how the Dow and Yen correlated this week, it doesn't seem to be coincidental.