Time for Market Pause and Top Japan Stocks
This blog will focus on the very important price levels in the markets and also starts a two part investor series on Japan. The markets have been very strong to start 2012 and every pullback has been small and typically bought. It has been a surprising run despite the overhang of Europe. On the other hand, Europe’s use of large credit facilities for their banks has changed the specter of a systemic collapse significantly. That is the primary reason that the markets have staged such an impressive rally since the 4Q of last year.
Many institutions have been buying based on a slow and steady improvement in the United States’ metrics, attractive valuations, the idea that Europe will be backstopped, and the fact that China appears to be headed for a soft landing.The short term technical indicators are still showing a very extended market that needs a pullback. But the buyers are keeping the markets grinding higher and the uptrend intact for now. China needs to continue its move up to keep the other world markets, especially the commodities market, pushing higher. It looks poised for another leg up in the next few months which is bullish.Gold and silver have also staged a good rally although this past week saw Bernanke’s testimony remove some hope of a QE3. That caused some significant selling in the precious metals after a strong move up in 2012. However, we expect the weakness in gold and silver to be short lived. There are significant changes coming in the commodities exchanges in China and Hong Kong that could push both metals up much higher in 2012.
The US GDP growth recently surprised to the upside, manufacturing numbers have been trending higher, and most US metrics for a slowly improving economy have been positive. Earnings reports for the quarter were generally solid and the unemployment numbers have also been slightly better. As Europe has been steadying, the confidence in the equity markets is definitely going up. In fact, Germany had a good GDP report last week and they are the biggest driver in Europe. That is just another positive outcome from the last quarter and last few months.
And, as MR continues to point out, the world equity markets have been also moving up because of China. The new world growth engine is not the US but China. And as China goes, the rest of the equity markets will move accordingly. For now, China looks to be holding firm on its strong growth in the 8% area and inflation is still in check. That is good for both consumption and for commodities in general. After a rough 2011, a bounce back in China will help support a better 2012 for many companies and for the world markets.
Strong Battle At Old Highs
The markets have come a long way from the end of November and in the last 100 days. The technicals are still extended and a 3 to 5% pullback would be healthy. The big question is whether a breakout occurs above the key tops first or a pullback happens in the first part of March. The key market levels again are: DJIA – 13,000, S&P 500 – 1371, and COMP – 3,000. These are critical battleground price levels for the short sellers and whoever wins this battle will determine the next bigger move for the markets.
Our current projection is that a pullback probably happens in the first half of March but then the markets push higher to 1400 or more on the S&P 500 later in the month and into April. Obviously, a breakout from those key levels in early March could take the S&P 500 to 1400 much earlier. But, any push to 1400 to 1415 will probably be the high through the summer. Keep an eye on Apple’s stock because when it tops, it will take the rest of the market down with it. And that top is probably $550 to $560 and very soon.
The fundamental valuation for most US stocks is still attractive based on a PE of 15 benchmark. Any pullback from the current levels would likely be bought after a minor correction based on the past two months’ price action.
Using the Power Stocks Table:
(1) Risk: Conservative (Cons); Moderate (Mod); Aggressive (Aggr); Speculative (Spec)
(2) Stop: Typically use a 3 to 4% closing stop below the entry price
(3) Trailing Stops: Use the 10 EMA (Swing) or 20 SMA (Short Term Trader) for protecting gains once above it; SMA = Daily Simple Moving Avg; EMA = Daily Exponential Moving Avg.
(1) Risk: Conservative (Cons); Moderate (Mod); Aggressive (Aggr); Speculative (Spec)
(2) Stop: Typically use a 3 to 4% closing stop below the entry price
(3) Trailing Stops: Use the 10 EMA (Swing) or 20 SMA (Short Term Trader) for protecting gains once above it; SMA = Daily Simple Moving Avg; EMA = Daily Exponential Moving Avg.
Top Japan Stocks With Value
The Japan stock market has been moving up with the rest of the world markets in 2012. It is no secret that Japan stocks have been struggling for decades and 2011 was another disastrous year. The tsunami and nuclear plant fallout was devastating in many ways for the country and Japan stocks.
Their overall market has done very little since the March 2009 bottom and many household Japan stocks have been slaughtered. However, MR believes that it may be time again to focus on some of the better Japan stocks with good valuations that were overly punished in 2011.
Japan is a resilient country and they will slowly climb back up. At this point, the Japan stocks on our first list are still aggressive but are worth serious consideration for a long term investor. MR likes PHG (Koninklijke Phillips Elect), MTU (Mitsubishi Financial Group), HIT (Hitachi Ltd), and NTT (Nippon Telegraph) at these price levels as our top Japan stocks with attractive value for a solid comeback.
Top 10 Japan Stocks – Value Stocks:
Investor Notes:
We will write a new precious metal blog early this week on how gold and silver prices could rebound strongly in the second half of 2012. The second part of the investor series on Japan stocks will come out in Wednesday’s blog.
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Good luck in your trading and investing,
CEO Jalexa Trading Consultants, LLC
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