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. 

Fish out of water

We’ve received so much rainfall these past few days here in Vermont that fish are crossing the roads. It’s been a soggy, messy Memorial Day weekend. Speaking of messy, it’s already Monday in Asia and the Japanese stock market just opened for trading. The Nikkei 225 is plunging right out of the gate (down 3% as I’m writing.) The Nikkei’s had a remarkable run in 2013, up 40.6%, so the benchmark is obviously entitled to a pullback. However, the 6.5% sell-off on Thursday and Friday is a little steep for my comfort level – it’s the equivalent of a 995 point drop in the Dow. My risk management strategy for Japan stocks has been on a buy signal since Thanksgiving, but I’ve now got a close eye on the exit door.   (Photo credit: Vermont Outdoor Guide Association)

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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.

強気市場

I came of age in the 1980s: I graduated from college, married and bought a home. In 1986 I accepted an invitation from my Dad to become part of his investment advisory business and less than a year later the US stock market crashed – the Dow Industrial Average plunged nearly 23% in a single day. It’s a decade indelibly imprinted on my mind. But there’s another big association I have with the 1980s and no, it’s not massive shoulder pads, though I am guilty of wearing them. When I think of the 1980s I remember Japan going on a real estate binge in the US and purchasing high profile properties like Rockefeller Center, Pebble Beach Golf Course and Columbia Pictures. I recall how it annoyed me to see a foreign country seemingly buying up America, but it really got under my skin when, in 1989, a Japanese company, Victoria Ltd, bought the Stratton Mountain Ski Resort in southern Vermont, my home state.

BLOG 4-25-2013Supported by low interest rates, the ’80s decade was a period of great wealth and optimism in Japan. Rumors even circulated of Tokyo businessmen sprinkling their drinks with gold dust. Then, suddenly, the Japanese bubble that began in the early 1970s burst and the Nikkei 225 index, Japan’s primary stock market benchmark, entered a long, long period of decline. Between 1985 and 1989 the Nikkei tripled in value, reaching a historical peak in December 1989 at 38,915, and in March 2009 the Nikkei fell to its lowest level in 26 years at 7,055 – about a fifth of its all-time high value. Those 20 years of economic stagnation are now called “the lost decades”.

Five years later, thanks to trillions of Yen in monetary stimulus, Japan’s stock market is on a tear. After surging almost 23% in 2012, the Nikkei 225 is up nearly 34% year-to-date and, at today’s close, stands at 13,884 – just 0.3% from its April 24 all-time high. After many false starts over the years, this rally looks like the real deal.

I added a strategy for trading the Japanese stock market to my newsletter back in 2006, feeling that the tide eventually had to turn and there would be tremendous investment opportunities for traders interested in international markets. My intermediate trend-based strategy generated a buy signal on November 21, 2012. However, I’m watching some potential resistance around Nikkei 14,000, which also happens to be one of those psychologically important round numbers – you can see the downward trend line on the 30-year Nikkei chart above.

I base my movements in and out of Japan stocks on the iShares MSCI Japan Index (EWJ), an exchange-traded fund with $10.3 billion in assets that is currently comprised of 313 companies.  Another way to get exposure to the Japanese stock market is though WisdomTree’s Japan Hedged Equity Fund (DXJ), a $7.6 billion exchange-traded fund. What’s interesting about DXJ is that it hedges its currency exposure to the Japanese yen which means the fund’s performance is a reflection of the changes in value in the companies’ stock prices without the effect of currency fluctuations.

For now, my Japan stock market reading: Bull market.

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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.