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Analyst: Japan Is Incredibly Overbought Right Now (EWJ)

DATE POSTED:November 14, 2017

The Japanese stock market is extremely overbought at current levels, according to one prominent Wall Street analyst, and a major downturn could be coming soon.

CNBC has more details on the bearish call from a Miller Tabak analyst:

The Nikkei on Monday posted its fourth-straight day of losses, following a record string of gains over the last month. A further decline could begin spilling over and impacting domestic markets, said Matt Maley, equity strategist with Miller Tabak. Here’s why:

The index, aside from its overbought condition, has also seen a large run-up in the last two months, Maley said Monday. To put its move into perspective, the Nikkei’s 21 percent gain logged from early September until last week’s intraday highs was half of its post-U.S. election rally, and 95 percent of its year-to-date gains, Maley said. This leads him to believe the index is quite extended in the short term.

Maley also points out that daily sentiment readings among commodity traders indicate overwhelming bullishness. This can be a contrarian indicator that things are poised to move in the opposite direction, since there’s essentially no one left to buy.

Finally, the analyst says that rising crude oil prices tend to be a drag on Japan’s economy, since the nation imports nearly all of its oil from foreign sources. If oil’s strength continues, it could be a major headwind for stocks and the economy there.

The iShares MSCI Japan ETF (EWJ) fell $0.13 (-0.22%) in premarket trading Tuesday. Year-to-date, EWJ has gained 20.89%, versus a 16.33% rise in the benchmark S&P 500 index during the same period.

EWJ currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 80 ETFs in the Asia Pacific Equities Ex-China ETFs category.

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