COMPARING WORLD MARKETS - FINDING THE NEXT LEADER!!

Looking at a 3 month and 6 month relative pricing chart, you can see the Hang Seng is the worst performing and has been drifting lower, under-performing all other markets on a 3 month and 6 month basis.

3M - Relative Performance




6M - Relative Performance






What is also interesting is that the Nikkei has been lagging right behind the Hang Seng, but on a 3 month basis the Nikkei experienced a negative 20-22% performance spread against the Brazilian Bovespa shrink, from Nov to today, to a negative 7-8% spread vs that same market. This means the Nikkei outperformed by 12-14% from that spread low. You'll also notice the negative Nikkei spreads disappear vs. world markets on a 3 month basis.

This means a long/short strategy is emerging. If you would have been long the Nikkei futures, and Short the Bovespa futures, you would have experienced a risk adjusted net gain due to the squeezing of the spread. Going forward, I believe, you can still implement such strategy if your risk appetite allows.


Can the Nikkei takeover world leadership long-term?

Let's look at the charts.

Here is a medium term chart showing a possible NIKKEI channel. We need to bounce here soon, but many indicators are supporting this rising channel.




10 Year Chart




There are many tell tale signs that the Nikkei may enjoy some leadership going forward. Their markets have consolidated their massive excessive bubble's for 20yrs. The US markets have now been in a 10yr consolidation phase - maybe another 10 before we actually bottom, who knows. But one thing is for sure, nothing is certain, not even the certainty that the Nikkei is poised for leadership.

Japan Downgraded - Time to Buy!

S&P downgrades Japan - Why this is a time to buy!


Moody's and The Bovespa - 2002

Brazil almost went bankrupt in 2002. In 2002, many of the international financial agencies were downgrading Brazil in many ways - many blamed the debt uncertainty because of a socialist/leftist candidate named Lula da Silva and the possible negative economic implications if he were to win the election - well he did win and so did Brazil.

Article: Moody's Downgrades Brazil Debt Article.

And this is what the stock market did after the debt downgrade and the election of a socialist.



Today: S & P and Japan!!


S & P downgrades Japan's Credit Rating Article.

Here is a chart of the Nikkei 20yr.




The Nikkei has been drifting lower for twenty years - the chart looks to have double bottomed and this could be a place to park some cash as markets around the world continue their correction. Let's see where the Nikkei is 3-5 years relative to world indices. Here are some charts of MTU, MFG, and NMR.

Note of warning: when these type of media events take place, the volatility will naturally increase so expect some "whipsaw" action.

NMR





MFG




MTU




Use any weakness to start accumulating Japanese banking stocks and any other stocks that have good technical signals. I will now scour Japanese stocks for new bargains, etc. This will be a volatile time so manage and strategize your approach.

GA - Giant Interactive - Chart Of The Week.

Giant Interactive is a online gaming company in China. Notice how there has been a sort of flat line to the MACDs and even the price. But what is changing now is that the price is ever so slightly rising relative to its 50d EMA(exponential moving average). ADX trend indicator has also shown signs of shifting. Stochastic popped into positive territory and looks like it could stay there. If the trend is shifting, it is strategic to get in while the beta is low, and you have a slight rise to the price relative to its MA's - you can get 5% without any notice.




Risk Management:

Sell if the short term uptrend line is broken.

Chart of the Week - CHANNEL BREAK

Central Pacific Financial Corp. (CPF) has broken it's bottom channel line which is a trend reversal concept. Watch for the development of a new channel and its transgression lines.

From Online Trading Concepts

Trend Reversals
When price closes outside of the Linear Regression Channel for long periods of time, this is often interpreted as an early signal that the past price trend may be breaking and a significant reversal might be near.

Linear Regression Channels are quite useful technical analysis charting tools. In addition to identifying trends and trend direction, the use of standard deviation gives traders ideas as to when prices are becoming overbought or oversold relative to the long term trend.




According to the concept, a new uptrend should begin. I guess only time will tell.

Chart of the Week (and decade)

Mitsubishi UFJ Financial Group, Inc. (MTU)


I first found the idea of Japanese banks as a good bet for 2010 from the blog THE OIL TRADERS BLOG. I then delved into some charts and found the technicals to be quite impressive. I decided to post this one as the "Chart of the Week or(more like decade) which shows a massive possible trend change. It all makes sense in the respect that the Japanese Banking Crisis happened in the late 80's early 90's. Our banks dominated the last 20 years and arguably longer but the tides may have shifted and put Japan's financing in the lead going forward - we'll see.

Here is a chart of Mitsubishi UFJ Financial Group, Inc. MTU which shows a massive Long Term trend shift in the form of a Head and Shoulders bottom.





Other tickers he mentions are MFG, NMR.

AUY vs. MU

Here is a view of why the short early cycle/long late cycle may be quite profitable in the short term and also give you a bit of downside protection.

AUY Channel

The objective is to expect a bounce to the median channel and even the upper band. Watch for breakdown at support channel. If it breaks, strategy will have to be re-evaluated.





MU Channel

*Notice it is in the median of its channel - it can still thrust to that upper channel and then create the downside correction/consolidation period.




The looming risk in this trade is if AUY breaks down at trendline(it can happen) and MU keeps going - that would hurt, but worth the risk.

Watching the leaders for "The Shift"

I first wrote about the coming secular bull market in the semiconductor space in the 2008 article THE OTHER COMMODITY. In it was the first pitch on the idea that a secular shift was occurring in the Semiconductor space, and more specifically the Philadelphia semiconductor index (^SOXX).

Well, almost 2 years have passed since that article and we are still showing signs that this huge turn could be manifesting, although the first purge may be coming to an end.

In this article I will demonstrate that the current bull move for the Philadelphia Semiconductor Index could be coming to a end and a medium-term corrective trend could begin - meaning we could see a 6-9m downward consolidation phase.


Is the bull alive and well in Semi land? - Yes, by all means this is just the first pitstop where one should protect profits, scale back, and even use this current move to add to the strategy of long late cycles, like energy and gold, and short early cycles such as Semi's.

Here are a few charts to contemplate this theory that we may get a 15-25% correction in Semi stocks soon.

Semi Index hit my resistance zone and is showing what could be a Long Term WAVE 1 completion, with a corrective WAVE 2 coming, of ELLIOT WAVE THEORY.



I like MU as the best overall technical play. I posted about the CHANNEL BREAK below which showed the reversal of that trend.





But things are shifting, and I am now looking what could be the completing of a WAVE 5 count. This coincides with the Semi Index completing the WAVE 1 of the index above.





In essence, the current move off the bottom could be coming to completion. At what price this happens is still up in the air as these type of capitulation things can go farther, faster than you think, but over the next 6-9months, prices will be at best flat in this space, and probably experience a 15-25% correction.

This would bode well for a short early cycle/long late cycle risk adjusted strategy. This by no means means the end of the secular trend is over, but rather if you want to try and time the market, this is a place to try.

Always enter at your own risk, but with MU up almost 250%, I'll take those chances.