The Question for Carry Traders is Can the Dow Rise Further

Profit taking in the Dow has triggered profit taking in the Japanese Yen crosses or carry trades. Since the Federal Reserve cut interest rates on September 18 2007, the stock market has increased just shy of 800 points from a low of 13360 to a high of 14155 yesterday.

On a point basis, this move has been significant especially since it has taken the Dow to all time high above 14,000. On a percentage basis, it is only slightly more than 5 percent. With carry trades moving in lockstep with the US stock market, the burning question on everyone?s mind is How Much Further Can it Rise? After the Fed rate cut interest rates last month, we talked about how the S&P 500 sees gains on average of 12 percent. From September 18, which was the first time that the Fed cut rates this cycle a 12 percent move puts the S&P 500 at 1650 and the Dow at 14950. Based upon history alone, the Dow may have far more room to rise.

Written by Kathy Lien, Chief Currency Strategist for