Herein, I’m updating a string of posts on Japan, in which we’re still long positions in the Japanese ETF ($DXJ) and Sony ($SNE)–the latter of which has been cut in half for idiosyncratic reasons.
Back in July, I noticed a familiar chart pattern developing in Japan’s NIKKEI index. I was reminiscent of numerous momentum boom/busts throughout the years, namely China’s Shanghai. I was admittedly skeptical, and I did a lot of research to affirm/disprove the theory before choosing sides, including a search for a signal that could’ve triggered the breakdown.
In my subsequent due diligence, a number of inconsistencies cropped-up. First, $USDJPY charts appeared bullish (bearish $JPY). Then, $DXJ held trendline support of a bull pennant that was part of a larger Cup & Handle formation. That second point started to break-the-back of my bearish Shanghai analogue.
Both the NIKKEI itself and DXJ have since retested (and successfully held) their trendline supports in a second pass. The short term bull pennant has coiled into a vertex, portending an imminent breakout–lest the classical pattern fail. The bias is certainly toward the bull camp, particularly given the larger, overarching C&H:
Further, USDJPY still looks ready to rally up to its long term bear channel’s trendline resistance ~105–a weakening of JPY that aids local equities:
I plan on doubling our DXJ position from 2% to 4% were we to get confirmation of a breakout.