The benchmark Nikkei 225 has gained 33% in the last six trading sessions since bottoming at a 26-year low at 7,162 on October 27. However, to put the surge in perspective: from the start of October to that bottom, the Nikkei shed an even more impressive 37%. So at a close yesterday of 9,521, the N225 is still nearly 2,000 points from its Oct. 1 close of 11,368, which as I’ve said many times before, is far, far from its 2007 peak levels exceeding 18,000.
Given the heavy selling today in the U.S., which picked up momentum in the afternoon, it is a no-brainer that it will impact trading in Tokyo. The question is to what extent? Keep in mind that the intra-day N225 high/low spread has averaged over 500 points since October. Following a sharp gap down, we’re likely to see weakness over the remainder of today’s session. However, it is not clear there will be all that many sellers or buyers on the way down. For what it’s worth, N225 December futures in Chicago were last off 405 points at 9,180.
What could salvage the day is expectation and observation of more pension fund buying. In addition, short-selling restrictions may actually help, too. Regarding pension fund buying, it is unlikely they’ll be selling recently entered or accumulated positions. Also, I’ve recently touched on the implications, both positive and negative, of cross-shareholdings. This too will limit possible sellers.
That said, based on the mostly net-selling by foreigners of late, it really narrows the field of possible sellers. Unfortunately and in spite of the sharp recovery from last month’s historic bottom, it appears some retrenchment and further downside is coming. The reality is that while certain conditions have improved, such as key lending rates (and not to mention the end of the uncertainty of the U.S. presidential election) economic
