I'm constantly trading in and out of DXJ. Sell high is the exit strategy here. Bought the morning dip. Expected rally back up on all the supportive news. That didn't happen. News drives the market, today it didn't so I'm left puzzling what happened.
Nikkei aftermarket, futures doesn't really explain it. Its small,illiquid, subject to hedge fund manipulation.What happened today happened in New York (once it opened).
Now Chairman, let me ask a question: Did you have an exit strategy when you entered your DXJ position? An exit strategy limits your losses when the trade goes against you and you cannot explain to yourself why that happened. It gets you out before you begin having those sleepless nights coupled with endless anxiety and nausea as you watch your position deteriorate in front of your eyes.
Most DXJ retail buyers were kind of late to the game and this abrupt move downward has them frozen like the proverbial "deer in the headlights." I say that they were late to the game because even most institutional investors, including major Japanese pension and insurance companies are underweight Japan. That underweight also includes the regular Japanese investor who has, I believe, the lowest allocation to stocks of any country's investor class in the world: 《 20%.
That being said, expect this correction (after a truly massive gain since November 2012) to be the real entry point for some big inflows as the big guys position themselves for the big moves in the Nikkei that are yet to come. Do you remember the drama in the US since March 2009? Do you remember those massive down days for the market here and the roller coaster that was the VIX? Think of Japan today as if it was 2010 here in the USA: a big move had occurred but the best was yet to come. Remember that in Japan they are only about 3 months into the process and they will be doing a QE Program equal to Benanke's in an economy that is about 1/3 the size of the U.S. We reached new highs here in the U.S. The high in Japan is a long way off from here, my friend.
Now let me answer your original questions. DXJ is reacting to the current strength in the YEN. The YEN may retrace to 99.50 before it resumes its inevitable decline. DXJ also reacts to the Nikkei futures markets and the Nikkei aftermarket trading which is not the same as the closing Nikkei price.
As a final thought, get out now or stay for the 2 year ride.