Long time coming

 Today marks Japan’s first day of trading in the new year.  Looking back at 2013, it was quite a year for this island country: Japan earned the distinction of having both the world’s best performing stock market and worst performing major currency. Its benchmark index, the Nikkei 225 surged 57% for the biggest annual return in 40 years in a rally fueled by the Bank of Japan’s  extraordinarily expansive monetary policy. This same policy drove the Yen to a 22% loss on the year – its largest decline against the US Dollar since 1979. I’ve updated above the Nikkei chart from my April 2013 blog post. Back in April my intermediate-term newsletter timing model for the Japanese stock market was on a buy signal, but the long-term down-sloping trend line directly overhead had me questioning the longevity of that signal. As you can see, after 23 years the Nikkei has finally broken above that formidable resistance. Once broken, resistance often becomes support – a floor underneath prices.

♦ Please note that my readings will change without notice,  so please don’t buy or sell solely based on anything you read in this blog. 

Across the pond

German stock marketI’m three months into hosting an exchange student from Germany for the 2013-14 school year. Philipp, an 11th grader at Champlain Valley Union High School here in Vermont, is a gregarious fellow and I’m enjoying our frequent discussions about how life in Germany compares to what he’s experienced so far in the US. Philipp loves America – everyone is “so friendly here”, he says often. Philipp’s only complaint: the time-consuming and complex process for obtaining his student visa, which included a long train ride to the US Embassy in Berlin for an interview with a State Department official. I explained how 9-11 brought about stricter visa guidelines.

Philipp, like most 16 year olds, is completely uninterested in the stock market; his passion is American football. But as a money manager who spans the globe in search of reasonable risk opportunities for clients, the German stock market is something that I pay close attention to. While I don’t run a dedicated trading strategy for German stocks, a European Funds Timing Model has had a place in my newsletter since the 1990s. Germany is a very important economy in that region. Although a relatively small country, Germany single-handedly kept the Euro afloat when Greece, Ireland, Spain and Portugal experienced their sovereign debt crises two years ago.

(click to enlarge)

(click to enlarge)

In the second quarter the Eurozone edged out of its worst recession on record – one much deeper and longer than experienced here in the US. The continent’s recovery is fragile, just like here in the US, and for that reason many European equity investors view Germany as the safe-haven country. The flight-to-safety has propelled Germany’s stock market sharply higher over the past two years. In October Germany’s primary stock market benchmark, the DAX, broke through the 9,000 mark for the first time in its 25 year history. [The DAX is a blue-chip index comprised of Germany’s 30 largest companies (e.g. Lufthansa, Adidas, Siemens and BMW).] But recently the German Central Bank, their equivalent of the US Federal Reserve, warned of a severe correction.

Applying my trading parameters to iShares MSCI Germany (EWG), a $5.5 billion ETF that serves as a reasonable proxy for the German stock market, German equities are currently on a buy signal. US investors looking for broad exposure to the Eurozone have several options, but the most popular in terms of asset base with $15.6 billion under management is Vanguard FTSE Europe (VGK). Germany has the fourth largest individual country presence (13.5%) in VGK. My European timing model is also in buy mode. As the case with any investment outside the US, be aware of country/region and currency fluctuation risks.

♦ Please note that my readings will change without notice,  so please don’t buy or sell solely based on anything you read in this blog. 

Talking technicals

MoneyLife with Chuck JaffeI was interviewed on the Friday, May 31 edition of MarketWatch columnist Chuck Jaffe‘s program: “MoneyLife with Chuck Jaffe”.  Click here to listen to me discuss what I’m currently seeing in my charts.


Please note that my readings will change without notice,  so please don’t buy or sell solely based on anything you hear in the discussion.