DXJ is reflecting the correction in Japanese equities that began today. Kyle Bass, and other savy investors, have indicated that the large Japan Central Bank monetary infusion program, proportionally 3x the size of QE…X in the US, is inadequately sized to keep the Yen depreciating against the EURO, Dollar, Pound, etc. Combined with the tepid growth in China, large Japanese companies face less demand for their exports to China, Europe, and the US.
The 38% appreciation, YTD through yesterday, of the DXJ may be played out in the Short Term. The ETF could be on a path to correct to the low $ 40’s , before stabilizing and resuming it’s growth trajectory. Significant corrections, as evident today, rarely are exhausted in one day. The risk adjusted returns for the DXJ are weighted in favor of further decline over the next several trading days.
DXJ Update: The second significant correction since June 10 is now in trading day 3. Stock is down 5%, calculating low's, and 6% from July 24 high to today's low. The technical's are again telegraphing caution. Today DXJ broke below the 20 and 50 day SMA , the 12/26 day MACD crossed below the 9, and the 5 day EMA crossed below the 13 day on moderately high confirming trading volume. All of this reflects the drop in Japan equities over the past several days. The two previous peak to trough corrections, May 22- June 6 and June 10-14 registered 18% and 9% sequential retrenchments. Using that measure DXJ will bottom between $ 40.10 and $ 44.54. I believe that the $ 42- $ 42.58 support established early to mid June is the likely bottom.
The technical's are reflecting the uncertainty surrounding three major contributing factors:1- Effectiveness of the new majority Abe government in stimulating the economy and domestic demand 2- The growth rate of China, and their willingness to accept Japanese exports. China's growth also has considerable collateral impact on Japans trading partners in the developed and developing world. 3- Strength of the Yen vis a vis Dollar.
After some ray of hope yesterday, the DXJ continues it's negative short term trend line. With only one small exception, the DXJ has realized daily lower low's and lower high's. The Nikkei, at 12,686, is now down 20%. The Yen remains strong vs Dollar @ $ 95.19. The S/T technical's of DXJ are uniformly trending lower.
Additional Bank of Japan stimulus decisions, if any, are unlikely before the conclusion of the US Federal Reserve June meeting this coming Wednesday. Longer term the Yen is likely to depreciated against the dollar, this is positive for the DXJ. Short Term the DJX is likely to bottom @ $ 40-$ 42. If that level does not hold, the next support is $ 36.43- $ 38.94
DXJ is down 4% + today and slipping for the reasons discussed on this message board. The Nikkei and DXJ price are telling us the correction is not yet over. Yesterday PM Abe articulated his 10 year vision for prosperity and reflation of assets. The immediate response has has been " wait and see ". With elections for the upper legislative house a month away, the government will not want to tackle labor restructuring, agricultural reform, and job dislocating merger issues that will be unpopular with key voting bloc's. The first two steps in the " three arrow" government plan, monetary stimulus and, infrastructure spending are inadequate to achieve the objectives. Absent the timing and scope clarity of the restructuring arrow, combined with the strengthening yen v dollar, the Nikkei/DXJ will continue to fall. Yen is now $ 94.09. DXJ could breach $ 42 today or early next week.
I personally have set three different buy levels for DXJ between $ 40 and $ 42. The highest level was triggered within the past 30 minutes. The nearly unprecedented 1 day 3% appreciation of the Yen vs Dollar, and concern about the impact of tomorrow's unemployment number' on Federal Reserve tapering is today's market moving factor.
What do you suspect is a good buy point? High 30s?
I bought in a couple weeks ago near the high point. Feel a bit silly now, but I, like you, am ready to acquire more once it's bottomed out.
June 6 update. All technical continue to point decisively negative.....MACD, SMA, Stochastics. The Yen appreciation vs the dollar has eliminated the carry trade, significantly disadvantaged Japanese exporters, and tanked their stock exchanges. Effectively panic selling, based on real fundamental reasons,is begetting more panic selling.
Jeffrey Gundlach the prescient founder of Doubleline Capital, was unique in predicting the drop in AAPL from $ 704 to the low $ 400's. This week he predicted that the Nikkei would bottom @ 12,000-12,500. This translates to a DXJ price of $ 40.92-$ 42.62, consistent with my May 23 estimate that the DXJ would correct to the low $ 40's.
I concur DXJ is accelerating it's retrenchment, breaching the 20 and 50 day SMA, with MACD dropping below zero today. The negative momentum and elimination of the dollar/ yen carry trade, is driving DXJ toward the low $ 40's this week.
We are now in day 6 of the correction in Japanese equities. DXJ is down an additional 2.2% today. As reported by Barron's the IMF has reversed itself and is now pressuring the Japan Central Bank to avoid further depreciating the Yen. A strong Yen, weakening economies in major customer regions....Europe, and Greater China, are contributing to the severely correcting Nikkei.
Technically, the DXJ is now below the benchmark 20 and 50 day SMA, with the MACD approaching zero. Absent a positive catalyst, not now evident, the DXJ will likely challenge low $ 40 support levels next week.
Update- DXJ is now in the fifth consecutive day of it's correction. Shares have declined from a high of $53.95 on May 22, to today's low of $ 47.17 or a 13 % decline. The stock technical's are telegraphing accelerating weakness. With one exception, ever day registers lower low's and lower high's. Stock is below 20 day SMA, and is close to breaking lower than the 50 day. The MACD is dropping sharply, ditto the 5/13 day EMA.
DXJ continues on it's path to the low $ 40's support level next week and will likely break below $ 47 this week.
All the BOJ has to do is sell the ¥ aggressively again to drop it from 100 to 120 to the $. Guess what a lower ¥ does for their exports, and consequently the Nikki 225? You are right......DXJ will continue its inexorable climb. Be careful about performance of last rites for DXJ.....Japanese futures are already UP tonight 0.6%.
Sentiment: Strong Buy
I concur that Mid to L/T the Yen probably weakens against the Dollar. S/T the correction continues and may be accelerating. Yesterday the PM responded to the drop in the market by punting to the central bank governor, who in turn was unable to re-assure the markets, witness today's 3.8% decline in DXJ.
DXJ technical's continue to evidence signs of weakness. The 5 day EMA has now crossed below the 13 day. The down trend of the MACD is accelerating. The ETF crossed below the 20 day SMA and is headed south toward the 50 day.
Clearly the correction is severe but is not evidencing a quick reversal. Each day since May 22, DXJ registers lower low's and lower high's on very high confirming volume. I believe that the correction will be largely played when in the low $ 40's, or when the BOJ considerably add's to the size of what is already the world's largest monetary stimulus program, measured as a % of GDP.