In December (see here) I noted that I was selling my position in the Nikkei (Japan) via my position in the iShares Japanese ETF. I felt that the index had gone parabolic, and there was a certain level of support on the Yen coming into play. Recall from my prior blogs that there is generally a negative correlation between the Yen and the Nikkei. Effectively, a falling Yen is good for their stock market. My prognosis of pending support for the Yen would be bearish for the Nikkei. Further, seasonality was about to get choppy for the index. Finally, I noted that a few TV talking heads that focus on ETF investing were then starting to jump into the Nikkei. Remember my recent reference to the AIM Advisor model regarding the inaccuracy of  most investment managers? Their new enthusiasm in December was one more factor against that market.

nikkei to yen

Right on schedule, the Nikkei is beginning to weaken (black line on chart). Simultaneously, the Yen is rising (red line on chart). My suggestion continues to be that of reduction in your exposure to the Nikkei. There is a potential for the index to settle and find support after an overbought selloff, but that remains to be seen.


  • Their new enthusiasm in December was one more factor against that market.
    Hi Keith:

    Could you be more specific as to your comment quoted here. Are you referring to the Optix of Japan or…. As a subscriber to the Sentiment Trader, I would like to look at the specific chart you are referring to. Thanks.

    • Hi Terry
      There isn’t a specific AIM model focusing on Japan–I referenced the AIM model merely because it is an indicator that suggests advisors are often wrong at extremes. My observations, specifically, were from two people I saw on TV who tend to focus on ETF investing – they were saying to buy Japanese ETF’s just prior to my decision to sell. The AIM model reference is not a specific Japanese one to sentimentrader – instead, it was being used in the context of understanding that the advisory community often buys high.

  • Keith: Is there a “HDGE” equivalent for the Nikkei?
    If so might the retraction in the Nikkei be enough to warrant entering a position?
    If so how long might the retraction last?

    • I don’t know of a hedge / inverse ETF’s for the Nikkei Daddyo–but if you buy the yen or a yen ETF, that might work.

  • Hi Keith,

    I appreciated your earlier CRAP blog and questioned you on Computers. I have been considering the other themes.

    Re: Resources, you were suggesting that oil should pull back late Jan or early Feb, but XEG seems to be at the lower limit of its trend channel. Are you anticipating it dropping below the trend channel?

    Re: American banks, would you favour an ETF like ZUB or buying a bank directly like BAC?

    • Paul–XEG is at the low end of the channel, which is what should have happened (oil weakens from mid January into end of January, stays choppy then starts to rise from late Feb on – according to seasonal charts and personal observation)–thus now, or really soon, is usually the time to buy the energy sector.
      For the banks–I like ZUB as a broad play, and you can add to alpha by looking at fundamentally strong stocks within the sector.

  • Keith, there are a number of stocks with large offshore assets that could benefit from a one-time tax deal by the US Admin, to repatriate that money. Includes MSFT, GE, etc.

    Is this a worthy short-term play? You can get the list from Oxfam who did a report on it.

    • Bob–thanks for posting this–I’m sure it will be of interest to readers. Its more of a fundamental question you are asking, but as TA’s we can view the charts on the list you describe and make our decisions from there.


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