At a time when it appears global markets are showing signs of true divergence, we are focusing on the single country ETF - EWJ - iShares Japan ETF - this week.
This popular ETF that provides a decisive exposure to Japanese stocks has been having a rough time in recent weeks. This week it tumbled 1.45% on, huge above average volume somewhat repeating its technical performance the previous week. Last week, EWJ's price fell below its 40-week SMA. Equally importantly, this week its close below its near term support level of $11 made us take notice.
In May 2013, EWJ rose to a high of 12.25 from the lows of 8.50 when 'Abenomics' took shape in late November/December 2012, in a 44% surge that reflected on the economic policies of the new Japanese Premier. Japan realized in early 2013 that it had to come up with a decisive push to end decades of deflationary economic situation as it realized its economic situation was gravely endangering its economic position as the world's 2nd largest economy. Since then, China overtook Japan to become the 2nd largest economy and Japan's moves were clearly realized as essential.
After topping in May/June 2013, EWJ's chart hasn't been showing superior technical strength as it got stuck in a trading range though its 40-week SMA slope had been on an incline. In early 2014, its 40-week SMA slope had been flattening and now the ETF has slumped below this key average.
So, is 'AbeNomics' not working? The most recent economic development that saw Japan rising its consumer tax by 8% makes us think otherwise. No country would endanger its growth especially with its economy trying to defeat decades of deflation. We believe Japan's economy is on the mend and as long as it keeps its economy competitive and continues to be attractive to other developed / emerging market imports its economy has a strong possibility of coming out of a long deflationary slump.
Technical support does exist around the 10.75 levels and if its trading range patterns continue, the ETF could get to see some upside. But short term investors may not be able to get on to this just yet it appears.
Good Luck and Happy Trading!