Sony Drops Most in Tokyo Despite JP Morgan Upgrade

Bears are prowling in Tokyo as the Nikkei 225 extended its losing streak to four days in the face of a strengthening yen and weakness in most global markets. Sony (Tokyo: 6758) (SNE) fell victim, dropping 5.5% on heavier than usual volume.

Sony's ordinary shares lost ¥340 to close at ¥5,830 ($49.57 ADR equiv. at ¥117.6/$1), their lowest level since Feb. 5 (¥5,700). It was the biggest decliner among TOPIX 1st section stocks, including Nikkei 225 components. Sony's ADRs gained 0.27% to $51.87 yesterday.

FISCO news service (Japanese source) reports JP Morgan upgraded Sony to "overweight" from "neutral" and raised its target share price to ¥7,600 ($64.63) from ¥5,600. However, the upgrade did not prevent Sony from dropping quickly in early trading and reaching an intra-day low as the market closed.

In separate coverage, FISCO notes Sony fell through its 25 day moving average and support at the ¥6,000 level. Traders are apparently looking to its Jan. 31 close of ¥5,440 ($46.26) as support.

Sony traded near a five year high at its most recent peak on Feb. 27, ¥6,540 intra-day, ¥6,520 ($55.44) close. This equals a 45% jump from its near-one year low close of ¥4,510 ($38.35) on Dec. 5.

In closing, it seems Sony is being sold for three reasons: (1) it rose too much, too fast; (2) domestic and overseas indices are under selling pressure; and (3) the yen has strengthened against the US$ from ¥122 to ¥117 over about the past month.

It will be painful for investors if Sony has another ¥400 to fall to its next support level as was suggested above. The question is whether to cash out -- if one hasn't already -- following the recent run-up, or if one should believe the bulls such as JP Morgan and Goldman Sachs, the latter which recently published a research summary in Japanese arguing there is risk in not owning Sony. Note Barron's carried a bullish piece on Sony two weeks ago.

* For convenience, all yen share price values are converted to US$ using a conversion rate of ¥117.6.

Disclosure: The author does not own shares of Sony.

Sony (SNE) 1-year chart: