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Black or "Red": Is Japan's Bull Market Here to Stay?

Fundamentals say, "wait-and-see." Elliott waves say, "The trend is clear."

by Nico Isaac
Updated: December 03, 2015

This holiday season in Japan, the most sought-after, in-demand product is not the new iPad Pro or Star Wars light saber toy; but rather, a year's supply of red underwear.

As one recent news source explained: 2016 is the Year of the Monkey in Japan. Monkeys are called "saru," which means "go away." According to "an old saying, wearing red underwear in the year of the Monkey can" increase your luck and thwart off disease.

With this in mind, Japanese department stores and retailers have stocked their shelves with countless varieties of red undergarments, featuring "slogans such as 'Yanakato Saru,' (unhappy things go away)." (November 19 NDTV)

Well, we can think of one group of people who might already be donning these, err, Tightie Reddies: Japanese investors. No doubt they'd love to see two "unhappy things" in particular "go away" a.s.a.p.:

  1. Another scathing correction in Japan's Nikkei 225, like the one that saw prices plunge 14% in Q3 2015 -- the market's worst losing quarter since 2010.
  1. Or, the recent G.D.P. data which showed Japan's economy suffering its first-ever "quintuple dip" -- the fifth recession since 2008.

Now, according to conventional wisdom, number 1 is entirely dependent on number 2. In other words, whether "unhappy things" stay away from Japan's stock market hinges on a favorable turnaround in economic data.

So, by this line of thinking, what does the smart Japanese investor do at this stage in the game?

Answer: He/she adopts a "wait-and-see" approach; holding out for a positive resolution of several pending economic factors, including:

  • Further rate hikes in the U.S.
  • The trajectory of economic growth in China and the global bear market in commodities
  • Whether the Bank of Japan adds more stimulus  

But here's the thing: The news-moves-market model of financial forecasting is deeply flawed. In fact, three years ago, if Japan's investors opted to wait on fundamentals to provide a catalyst for stock market trends -- well, to put it simply:

They would have missed one of the most powerful, bull market rallies in modern Nikkei history.

Three years ago, let's reset the scene: Japan's stock market was in its 23rd year of gruesome bear market that saw real values disemboweled by 80% and sent prices circling the drain of a 28-year low.

As far as the mainstream analysts could see, there wasn't a single silver economic lining to be found in the black hole of Japan's deflationary malaise. Wrote one news source at the time:  

"I don't think there's going to be reasons for much of an upturn in the Japanese market. It's hard to recommend people go long on Japan's stocks."  (June 6, 2012 CNBC)

This insight was 100% correct. There was no fundamental reasons for Japan's stocks to rise in 2012.

There were, however, several bullish Elliott wave indicators suggesting just that. (And no, none of them had to do with red skivvies!)

At the forefront of this incredibly unpopular viewpoint was the editor of our Asian-Pacific Financial Forecast, Mark Galasiewski. Here, in his December 2012 Asian-Pacific Financial Forecast, Mark set the Nikkei's bullish stage:

"The Nikkei is approaching the upper line of the declining trend channel that has contained prices actin for the past three years. If the index can rise out of the channel to the 10,000 level, as we expect it will, the rally could have significant upside.

"Long a sleeping giant, Japan will probably surprise the world in 2013."

That it did. In 2013, Japan's Nikkei soared 60% to its highest level in 7 years; after which, the market consolidated for over a year.

Then, in the February 2015 Asian-Pacific Financial Forecast, Mark warned that the Nikkei's sideways holding pattern was about to end, and a new, powerful uptrend was to begin:  

"If Japanese stocks now accelerate higher in a third-of-a-third wave, as we expect they will, it will most likely mean that Japan's bear market ended at the 2012 lows."

The upside acceleration continued, with the Nikkei bursting through an 8-, then 15-, then 18-year high into early August 2015 before turning down.

As for the Nikkei's late September 2015 bottom -- well, here Mark Galasiewski's timing couldn't have been better. The same week as the Nikkei's low, on October 3, Mark took to the stage at the 28th Annual International Federation of Technical Analysts Conference in Tokyo. There, Mark primed the audience for a renewed rally and said:

"In fact, we may have seen the lows of the recent correction right here, this week."

In fact, you can watch an exclusive clip from Mark's IFTA appearance right here:

In Mark's own words:

"We as Elliotticians have a huge advantage over everyone else in the financial industry, which is this: We are able to forecast trend changes, even at a very large degree, without having to come up with fundamental justifications for why the trend changes will occur.

"Everyone else is burdened by having to speculate about possible catalysts for trend changes... All we have to do is get the wave count right."

There is so much more where that comes from. Mark's IFTA presentation not only covers his long-term forecast for the Nikkei, but also the 10-year Japanese Government Bond and Yen.

The best part is, we've just made Mark's entire 28-minute video IFTA presentation available via a risk-free subscription to our Asian-Pacific Financial Forecast Service.

Asian-Pacific Financial Forecast Service | Asian-Pacific Financial Forecast, Asian-Pacific Short Term Update, Elliott Wave Theorist

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Asian-Pacific Financial Forecast Service bundles together The Asian-Pacific Short Term Update, The Asian-Pacific Financial Forecast and The Elliott Wave Theorist. These publications give you the world's most forward-thinking perspective of Asian-Pacific markets and the developing trends that affect markets across the region. Get the analysis you need to prepare for opportunities in one of the most exciting areas of the globe.

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