"I think the Japanese equity market is probably the strongest of the equity markets, perhaps around the world," says Paul Desmond, president of Lowry Research.
It's a comment deserving of its own paragraph primarily because Japan last made money for long-side investors before most of us were born, professionally speaking. Since peaking at 38,957 at the end of 1989, the Nikkei 225 (^N225) benchmark index has dropped 75%, currently residing at a mere 9,581.
From a fundamental perspective, Japan is in a recession and has no apparent prospects for growth of anything above 2% under the best case scenarios. None of which matters much to Desmond as a pure chart player.
Desmond says the Nikkei made a significant bottom in July from which its risen to what is now an 8 month high. The rally is broad based across market caps with the number of companies making new 52-week highs expanding. Both bullish signs in the chart world.
"The whole picture looks very, very positive," is how Desmond sums up the situation before quickly adding that he's not talking about a brand new bull market. He's simply looking for capital gains where he can get them. With the U.S. rally starting to look long in the tooth in his view, a shot at Japan gives his investors a way to play on the longside for a shorter term trade.
As for the rest of Asia, Desmond is cautious on China, where the government sponsored news-flow has become positive of late. He doesn't think it's a short or a long trade, just a region from which traders should stay well clear. However, he sees Hong Kong (^HSI) as a region that could provide some opportunity, calling it the second strongest equity market in the world.
Long, short or out of the way, Desmond doesn't advise U.S. investors to jump in and out of individual stocks. "In almost all of global investing, ETFs are a very smart way to go."