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Another Look At Japan

05/24/13 12:02:41 PM
by Koos van der Merwe

After a long bear market and last year's devastating earthquake, Japan's economy and market is rising fast.

Security:   N/A
Position:   Sell

On December 29, 1989, the Japanese stock market, as measured by the Nikkei-225 hit an all-time intraday high of 38,957.44. Since then it has crashed with the country moving into a recession, and staying in a recession with a bear market that went on for more than 20 years. Why then would you look to invest in Japan? From a low of 8,160 on November 25, 2011, the Nikkei started moving up catching investors attention on the possibility that the Japanese economy could be in recovery. From a negative inflation rate in January, year to year inflation was running at 0.212%. Even wages rose 0.3% that month. To follow the Japan market, I have chosen the Claymore Japan Fundamental Index Fund iShare ETF (CJP) listed on the Toronto market as a share that could give me guidance to Japan's recovery. The ETF looks to replicate, net of expenses, the performance of the FTSE RAFI Japan Canadian Dollar Hedged Index.

Figure 1 Monthly Chart
Graphic provided by: AdvancedGET.
The monthly chart in Figure 1 of CJP shows how the ETF has fallen from a high of $21.05 in February 2007 to a low of $7.07 by March 2009. It then rose to $11.00 by April 2010 but fell to a new low of $6.37 by July 2012. Since then it has been climbing steadily as the world economy appears to be solving its economic problems. The RSI index is, however, at overbought levels which would cause you to hesitate before buying the share as a long-term investment.

Figure 2. Daily Chart
Graphic provided by: AdvancedGET.
Figure 2 is a daily chart, showing how the share price rose from a low of $6.38 on October 2, 2012 to the high of $12.51 by March 22, 2013. The Elliott Wave count shown is a simplified count that suggests a Wave V has been completed, and that the share price should fall in an ABC correction to the $9.89 level. The gap that formed as the share price fell does, however, suggest a rise to fill the gap before a further fall. The RSI index is suggesting weakness having given a sell signal, but looking at its history, it has not been a strong guiding indicator.
Looking at the JM Internal Band indicator, we see that a buy signal was given on November 15, 2012. The JM Internal Band indicator is a 15-period simple moving average offset by 2% positive and 2% negative. On March 28, 2013 the JM Internal Band indicator gave a sell signal as the close dropped below the lower band. On April 5, 2013, however, a buy signal was given as the close broke above the upper band. With the fall in price on May 23 at time of writing, the closing price is still above the JM internal Band bottom line, suggesting that you should hold the share until a more definite signal is given.
I would not be a buyer of the CJP at present, but I would place the ETF on my watch list keeping an eye of Japan's economic recovery.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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