The Coming Spike?

Markets have been steadily climbing, without hesitation but does that mean we are do for a correction? Maybe, or are we about to just plow through any correction and blowoff the bull market in the coming weeks? Chart one shows the Elliot Wave Theory within a channel trend. The signals are pointing to a weakening pattern, but prices can still move higher as the technicals continue to weaken. The rising prices are unsustainable long-term, but in the short-term we can see a blowoff top that would signal the end of "The Great Bounce Of 09", so some strategic planning and execution are what matters - defining a plan is a must to reduce risk.







And what does a simple calculation from Technical Analysis 101 mean for the market? Based on the Head and Shoulders Pattern calculation[(neckline - head) + (neckline) = Target], so the target for the Dow is anywhere between 11500-12500 (see chart below) - I use this large area in the Dow loosely because anything is possible. This is where your execution and plan comes into affect - defining where you want to be for the next 6-9m is crucial in the coming weeks. Liquidation will occur in this area which will increase volatility - it's already showing signs in the VIX.




The only thing one can do is take a measured approach to your risk appetite. You can start to diversify out of stock and into cash or you could take on some hedges by going short the areas of the market which you believe will fall, faster and further, which would hopefully offset the losses from any part of the portfolio that is long. The coming week(s) are going to be one for the record books, again!

Good Trading!

STOCK OF THE WEEK - POTASH

It seems everyone has bought some POT in the past, well the time may have come to buy it again. A possible breakout is occurring on a gap up with large volume.

Chasing The Lead Pack

The pack has formed, the Nikkei is setting the pace with the Nasdaq and its echo of pounding footsteps, close behind. Since the last post about the Nikkei's emergence in Comparing World Markets, the Nikkei has shown leadership during that time and is making a move to become the best large economy performer of 2010 so far. The long term charts for the Nasdaq and the Nikkei are best suited for a 3-5yr time frame to be long. There will be bumps, pullbacks and even some strong corrections, but a major(secular) shift is occurring. This also helps back up the theory - The Other Commodity - which has so far led many global markets out of the abyss.






The idea behind The Other Commodity and its relation to the Nikkei is that Japan is well regarded for it's technological advancements in semi-conductor manufacturing, optical segments, and most notably consumer electronics, although that has been waning in recent years(and decades) - known also for innovation financial services, which could also be starting it's new beginning. How? If China realizes that its internal financing economy can lead to risks down the road - why not just let your currency rise and start financing growth and reducing risk from Japan's financial institutions. Basically, spread the risk and a bit of the reward.

What we do know is that over the last 12 months, technology across the globe has shown relative strength in major markets across the globe and this could mean that Japan's Economy, especially if China let's the Yuan rise, will benefit most from the consumption of smaller, better gadgets in technology, worldwide - which may help Japan's consumer electronics industry to come out of hibernation.


Below is a chart showing the emergence of the Nikkei as the new leader in the short term. One great investment idea is to be long the EWJ. The idea is to be long until that trend line breaks. Also note that we are at the bottom of the channel so we are at a high-risk area, but also high reward. If the channel is true, then we can see a rise to the median and even upper channel trend.




Here is a list of mutual funds to hold long-term 3- 5yrs.


AIM JAPAN FUND

COMMONWEALTH JAPAN FUND

FIDELITY ADVISOR SER VIII FID A

FIDELITY JAPAN SMALL COMPANIES

HENDERSON JAPAN ASIA FOCUS FUND

HENNESSY SELECT SPARX JAPAN FUN

HENNESSY SELECT SPARX JAPAN FUN

HENNESSY SELECT SPARX JAPAN SMA


The basic premise of the research is that the Nikkei is poised to outperform most all other markets, even if they go down, the Nikkei is likely not to go down as much, and if they go up, The Nikkei is poised to go up more. 頑張って (Good luck!)

JASO the bull!!!!

Stock of the Week - JA Solar Holdings, Co., Ltd.(NasdaqGS: JASO)


Many indicators of why this channel is working - look at all the buy and sell signals on the Stochastic. Great Channel with lots of potential - "the trend is your friend".

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.