Is the Nikkei Foreshadowing a Move in US Markets?

The Nikkei has moved in one direction the last six months but like any party they all come to a conclusion. This to me is a classic case why investors cannot fall asleep at the wheel and after significant gains it generally always makes sense to book profits and manage your expectations as markets do not move in one direction indefinitely.

I for one left the US market way too early with clients but I think we could have a similar correction domestically and I do not want to see investors act like a deer in headlights if we get a 10% washout in US equity markets. Consider this a warning to trim positions and establish hedges so on that type of decline your portfolio remains intact.

As for the Nikkei let’s examine this move and where we are headed from here…

Nikkei Futures chart, May 23, 2012

Nikkei Futures chart, May 23, 2012

A 6.4% plunge in the Japanese stock market futures Thursday spilled into Europe, overshadowing moderately better economic data across the pond dragging down bourses in Frankfurt, London, Paris and Milan. As of this post US markets are suggesting a 1% lower open.

After the turmoil in Japan overnight investors are moving quickly out of riskier assets. The markets were manhandled by a confluence of events that interrupted a lengthy rally in risky assets. Thanks in large part to a flood of easy money from global central banks had investors blissfully purchasing stocks…particularly Japanese stocks. Before Thursday, the Nikkei had risen 50% in 2013 and 10% in less than two weeks.

Comments by Federal Reserve Chairman Ben Bernanke that the Fed might start pulling back on its bond purchases sometime this year made investors ponder that the flood might soon be tapering. That dovetailed with weak Chinese manufacturing data to send the Nikkei tumbling. The worst decline by percentage since right after the March 2011 earthquake and tsunami.
The slope of the market, particularly since the beginning of May, rang alarm bells and candidly seemed to defy gravity. At a minimum we should get a move back to the trend line (white line) that has supported the moves since it began in mid-November. From the highs that would be an 18% decline and then I would re-evaluate if there is more to follow.

As always, I’m here to discuss specifics and give guidance. Give me a call…
To discuss in more detail this chart or any other you can reach me at: mbradbard@rcmam.com or 954-929-9997

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