The Japanese market, like many global markets, including the U.S. market, had formed a rare and usually negative ‘megaphone’ formation, or ‘broadening top’ by the time it reached its April peak.
The Japanese market then topped out from that April peak along with the rest of global markets. But whereas neither the April-July correction in the U.S., nor the decline in August, carried the U.S. market down to the bottom of its similar formation, the Japanese market followed the historical pattern of the formation, declining in a bear market until it was down 26%, and at the potential support at the bottom of the formation.
At that point it was unloved, with sentiment very bearish. And it began rallying in early September along with the U.S. market and most other global markets.
The big difference is that it is doing so from a very oversold condition, after having experienced a bear market, whereas some analysts are concerned that the U.S. and other markets may be in an overbought condition.
Meanwhile, the ability of the Japanese market to move independently of other markets demonstrated by its decline into a bear market, has continued as the Japanese market has been virtually the only global market to make further gains over the last 10 days while most other markets sold off.
In the interest of full disclosure we have a position in the iShares Japan Index etf, EWJ.
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