Then Thursday evening's announcement from AIG (AIG - commentary - Cramer's Take) dragged a few more out of the bull camp. Now I see that Friday evening's FedEx (FDX - commentary - Cramer's Take) announcement has dragged a few more out of the bull camp. Pretty soon the bear camp is going to be so crowded we won't have room to move!

I say this because I saw a headline Sunday that caught my eye -- "Stocks headed for troubled waters from oil, consumption woes" -- and I thought to myself, how is higher oil and lower consumption any different than what we had two weeks ago? The answer is, it isn't.

Two weeks ago, the headlines were more along the lines of "Rebate checks hitting accounts and mailboxes, should help retailers." All that has changed is the perception. The news itself hasn't changed. The rebates are still hitting mailboxes, retailers are still enticing folks into their stores, and so the only thing that has changed is that the market gave up its gains of the last three weeks.

Since I have been hammering away at the intermarket relationship between the dollar/yen and the S&P for months now, I was asked a question about the euro/yen. The question was basically if the yen carry trade mattered to U.S. stocks.

I am no expert on the yen carry trade, so I have no definitive evidence to say whether the yen carry trade has a direct effect on the U.S. stock market or not. However, I can look at a chart and see if there is a relationship, and there most definitely is one here.

The first thing I notice when I look at this chart is that there was a steady uptrend until February 2007. Please note that the rather extensive correction in the U.S. stock market in the spring and summer of 2006 doesn't even show on this chart. However, that crashette we saw in February 2007 in the U.S. stock market is quite evident on the euro/yen chart.

Then I notice that from the crashette low, we trudged ever higher until July. That too is rather similar to the way the U.S. stock market played out. Then I noticed that every low and every high in euro/yen corresponds to the lows and highs in the S&P since last summer as well.

So perhaps the yen carry trade has no direct effect on U.S. stocks per se, but it obviously has an effect on the credit markets, which in turn have an effect on the U.S. stock market. If you believe the world is global. then I don't know how you can believe that one financial instrument has no bearing on another even if there is no absolute direct link. Either we're global or we're not.

Therefore, let's take a closer look at the daily chart of the euro/yen. It broke its uptrend line last week. It is now coming down toward that spike low (circled on the chart) from mid-April. I'd say it ought to hold that 158-ish level the first time down. However, it seems to me that rallies back toward the underside of that broken uptrend line will probably fail now.

And wouldn't a rally back toward resistance just provide us with the now-missing right shoulder of a head-and-shoulders top?

I would thus conclude that the yen carry trade has an effect on the U.S. stock market. In fact, I'm sorry I missed that divergence it had last week when the S&P made a higher high and the euro/yen did not. I could have added that to my list of indicators that said we were in need of a correction!

For the stock market, I'd say we're still in correction mode, but at least now we're getting closer to being oversold than we were two weeks ago when I first began discussing the correction.

Overbought/Oversold Oscillators

For more explanation of these indicators, check out The Chartist's primer.