We have never before reviewed the Japanese market in a Sector Spotlight, but with the strength that our fourth largest trading partner has shown in the last six months we thought that this would be a good time. You may have heard recently that the Nikkei Index has reached its highest level since 2000. As you can see in the chart below, the AMEX Japanese Index (JPN) has gained over 40% since June 2005, and all this during a time in which our own S&P 500 gained less than 10%.
Below we have provided you with a weekly chart of the Japanese index. The current price is 173.94. You can clearly see the sudden movement that started during summer of last year after such a long time of being basically flat. The Stochastics rating is firmly in the "Overbought" level, but remember that Overbought doesn't always mean a decline is coming. In this case we feel it is an indication of a big trend that will continue. We feel that it will pass 200 but would put a stop price in at 155, where the 20 week line rests now. Be sure to adjust that stop as the 20 week line moves higher.
AMEX Japanese Index (JPN) - Weekly
This growth has probably been fueled by all the talk recently of the Japanese economy finally recovering from its years of problems. A variety of economic indicators have shown improvement lately. The current account surplus has risen over 15% from a year ago and machinery orders have also risen several months in a row, just to name a couple.
So how can you take advantage of this surge in the Japanese stocks? One way is to invest in ADRs from Japan or in mutual funds that hold them. You are probably familiar with a lot of these, such as Canon (CAJ), Honda (HMC), Nissan (NSANY), Sony (SNE) and Toyota (TM). There is also an exchange traded fund issued by iShares that tracks Japanese stocks. The symbol for it is EWJ and right now it has the fourth highest average volume of all the exchange traded funds.
Price Headley is the founder and chief analyst of BigTrends.com.
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