Japan has been in a bubble of sorts. Their Nikkei has plunged more than 7% today. The chart doesn't reflect it, but this should give you perspective. It closed at 14484, -7.3%:
As you can see, it has had a heck of a run. A year ago, it was about 9000, so it is still up more than 50%!
Now, let's put that rally into context. Here is a longer-term perspective:
Huge downtrend...
Many people invest through the ETF EWJ. Keep in mind that the rally has been sparked by a sharp decline in the value of the yen. EWJ measures the investment in dollar terms, so it's rally has been less ebullient. This chart does update today's action:
As you an see, this has been extended. On my price momentum indicator, it was 2.00 last night. The return to the 50dma leaves it at 0.97.
Now, the real question is: Does this matter? I think that this ties into a general profit-taking mode. As I said yesterday, I am now bearish short-term. The plunge in Japan follows some weakness in a Chinese number. It should be easy to find problems to explain profit-taking, as we live in a glass half-empty and half-full world right now.
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