Nikkei Weekly Outlook: Overbought or Not?

What to watch: Key earnings reports begin Wednesday 4/23; Friday 4/25: CPI for March (April for select metropolitan areas)

Ongoing: External factors will inevitably weigh on domestic stocks (bullishness in the U.S. helped pull the Nikkei up to a multi-week high by week’s end).

Markets: On Monday stocks are likely to gap up following a 275 point gain (to 13,770) in Chicago Nikkei 225 futures on Friday, compared to a close of 13,480 earlier in Japan. However, the key question for this week in tandem with earnings is whether stocks are overbought and there will be profit-taking — to what extent is anyone’s guess; but let me warn of the poor timing for market participants due to the Golden Week holiday kicking off late next week, as trading activity has already been on the light side — or if the bears have been tamed and buyers enthusiasm will disregard the 114% level of the 25 DMA of TOPIX-1 advancers/decliners. The author can’t remember the last time the a/d has been 100+.

Consumer goods giant Kao (JP: 4452) releases earnings on Wednesday.

On Thursday, there’s a number of key releases scheduled including domestic players such as Asahi Beer (JP: 2502) and Kikkoman (JP: 2801), high-tech ceramics/plastic packaging maker Ibiden (JP: 4062), computer systems integration and support provider Obic (JP: 4684), robotic equipment maker Fanuc (JP: 6954), automakers Hino (JP: 7205), Daihatsu (JP: 7262) and Suzuki (JP: 7269), printing and consumer/business electronics giant Canon (JP: 7751) (CAJ: 50.28 0.00%), leading imaging and office equipment maker Ricoh (JP: 7752), Nintendo (JP: 7974) (ADR: NTDOY.PK), SBI Holdings (JP: 8473) and number two telecom carrier KDDI (JP: 9433).

Friday is by far the busiest day for earnings announcements, including: Yahoo! Japan (JP: 4689), Trend Micro (JP: 4704), Nippon Steel (JP: 5401), Kobe Steel (JP: 5406), Toshiba (JP: 6502) (ADR: TOSBF.PK), Elpida Memory (JP: 6665), Sharp (JP: 6753) (SHCAY.PK), Advantest (JP: 6857) (ATE: 29.71 0.00%), Denso (JP: 6902), Aisin Seiki (JP: 7259), Mazda (JP: 7261), Toyoda Gosei (JP: 7282), Toyota Tsusho (JP: 8015), Nomura Holdings (JP: 8604) (NMR: 16.35 0.00%), NTT DoCoMo (JP: 9437) (DCM: 15.16 0.00%), NYK (JP: 9101), Mitsui OSK (JP: 9104) and Kawasaki Kisen (JP: 9107).

Weekly recap: The Nikkei 225 gained 1.1% last week ending at 13,476.45, peaking at 13,495 on Thursday and hitting a weekly low of 12,858.63 on Monday. (See chart below). TOPIX 1st Section recouped 1,300 on Friday.

As of Friday’s close the N225 is trading at 15.2x trailing and forward earnings, 1.54x book, 1.4% trailing yield and 1.5% forward yield. By comparison, the broader TOPIX (1st Section) is trading at 17.0x trailing earnings, 16.0x forward earnings, 1.4x book, 1.7% trailing yield and 1.8% forward yield.