Archive for March, 2014

Has The Rally In Japan’s Nikkei 225 Run Out Of Steam?

Posted in Nikkei 225 Index (N225) on March 30th, 2014 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

In the year that followed the stimulus program initiated by Prime Minister Shinzo Abe of Japan in December 2012, the Nikkei 225 equity index rallied nearly 57% by the end of 2013. That stimulus program, which triggered the torrid rally of 2013, incorporated the economic policies of Prime Minister Abe, known as Abenomics. It consisted of three key initiatives, which included fiscal stimulus, monetary easing and structural economic reforms.

Nevertheless, by the end of 2013 the Nikkei 225 index could not rise above long-term trend line resistance at 16,320. Moreover, the Nikkei 225 also broke below steep upward sloping trend line support at 15,380, which suggests that a correction has likely begun.

A mild shift away from risk assets coupled with a moderate run into safer assets has given the Japanese Yen a modest lift in recent weeks with Dollar/Yen strengthening from 105 at the beginning of 2014 to 102.50 on Friday. This strength, however, pales in comparison to the decline in Dollar/Yen that saw it retreat from 83 in December 2012 to 105 by the end of 2013. Nevertheless, recent Yen strength could become more pronounced if global political tensions continue to increase. Such a scenario would, in turn, make Japanese exports less competitive and could erode equity values in the process.

Another economic issue that is lurking around the corner is the Japanese national sales tax, which is set to rise to 8% in April from 5% currently. While some observers expect to see the negative side effects of the sales tax hike to dissipate within 9-to-12 months afterwards, a near-term slump in consumer spending is nevertheless likely.

For now, a sell-into-strength trading strategy regarding the Nikkei 225 is likely to prevail over the short-to-intermediate term.


Global Jitters Lift Utility Stocks

Posted in Dow Jones Utility Index (DJU) on March 20th, 2014 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

With worries and a rise in political rhetoric over the referendum in the Crimea region of Ukraine today, and with concerns that Chinese debt issues could pose a threat to global growth, the Dow Jones Utility Average (DJU) climbed steadily last week. Moreover that average, which is perceived to be have a defensive bias to it by many investors, is now approaching at test of key downtrend resistance at the 535 level.

Since the DJU is currently in an overbought technical condition on weekly charts, a break above 535 could be a sign that investors are retreating from risk and running to safety instead. And while a move up to resistance at 570 could follow a break above 535, a broader look at the Dow Jones Utility Average reveals that a large upward sloping trading channel that allows for sharply higher gains in future months remains in place.

Another issue to consider is that utility stocks, which have risen nearly 9% since January 2nd, have been largely overlooked and somewhat shunned due to investor expectations for a rise in domestic GDP and a steepening yield curve. While a move above 535 could be seen as a near-term run-to-safety maneuver, a move above 570 could be seen as something more than just retreat from risk.

Nevertheless, overbought conditions are in place at this point in time and could imply that any major upward thrust from current levels could be limited. Time will tell.