Benefit of a doubt

Japan looked like the model for economic recovery – until yesterday. On Monday we learned that the world’s third largest economy unexpectedly fell into recession last quarter.  Analysts squarely lay the blame on April’s sales tax hike. The increase in Japan’s consumption tax from 5% to 8% was implemented to help rein in the country’s debt, but it ended up hampering consumer spending which accounts for two-thirds  of that country’s economy.

The diminished outlook for Japan’s economy is impacting Japanese financial markets. iShares MSCI Japan (EWJ), a $14.8 billion exchange-traded fund which serves as my proxy for the Japanese stock market, is experiencing an intermediate-term momentum tug-of-war (shaded area, top chart).  However, as you can see below EWJ’s major trend is bullish and when viewed in that broader context, odds favor higher prices in the weeks ahead.

My newsletter’s timing model for Japan Funds generated a buy signal on October 31.

 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. ♦

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. ♦

Talking technicals

I 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.