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Japanese stocks (especially exporters) are showing some resilience despite recent strength in the yen versus the dollar. A late rally today set the stage for what is expected to be a wild Friday.

It is now obvious that I sold my options positions in iShares MSCI Japan Index ETF (NYSEARCA:EWJ) too early. Although I made a very nice short-term gain, I could have more than doubled my investment in less than two-weeks.

I haven't bought back in because of recent intra-day weakness and various commentary that leaves me somewhat skeptical of how recent gains will hold up to profit taking. I still expect a strong finish overall for the N225.

That said, this Friday is the first big test for the year-end rally that I predicted (but cashed in on perhaps a bit prematurely!), since options and futures expire and there's a machinery order data release. The market can really go either way here, depending first on how trading in equities and currencies go overseas, with one possibility being profit taking tomorrow. Another possibility is market players taking a gamble on a strong report and bullish rolling over of options and futures contracts.

I'm content, for now, to watch on the sidelines and play individual stocks, while adding to my Japan mutual fund.

Top-3 ADRs trading at premium/discount to ordinary shares:

ADRs trading at a discount based on prior ADR close vs today's ordinary close:

  • Wacoal (WACLY) +1.17% today, ¥1,561 close ($67.87 ADR equiv. at 115/$1), ~1.75% ADR discount
  • Matsushita (NYSE:MC) +2.28%, ¥2,240 ($19.48), ~1.40%
  • Canon (NYSE:CAJ) +1.82%, ¥6,150 ($53.48), ~1.30%

ADRs trading at premium based on prior ADR close vs today's ordinary close:

  • Konami (NYSE:KNM) -1.80% today, ¥3,280 close ($28.52 ADR equiv. at 115/$1), ~3.0% ADR premium
  • TDK (TDK) +0.11%, ¥8,910 ($77.48), ~1.0%
  • Advantest (NYSE:ATE) +0.16%, ¥6,160 ($53.57), ~1.0%

iShares MSCI Japan Index ETF (EWJ) 1-year chart:

iSharesJapan-EWJ-1yr-chart-12-05-06

Disclosure: The author does not own shares of any companies/funds mentioned in this article.

Source: Nikkei Rallies in Late Trading -- ADR Watch List