Wednesday, February 25, 2009

Watching EWJ

Country specific ETF's have been crushed this year, and like the US equity markets, investors are wondering where is the bottom. Japan has been no exception, and the i-Shares MSCI Japan Index Fund (symbol:EWJ) has lost over 50% of its value in the last 15 months.

To visually see the carnage, check out figure 1, a monthly graph of EWJ. The "next big thing" indicator, which seeks to identify the potential for secular changes, is shown in the bottom panel.

Figure 1. EWJ/ monthly

EWJ should be watched closely for the following reasons: 1) the "next big thing" indicator is close to the zone that has signaled past bottoms; 2) EWJ is approaching its all time lows, and for those investors looking to "catch a falling knife" in a market plunge, this might be a good place to put a buy order in; and 3) EWJ is only modestly correlated with US stocks.

Lastly, I will caution that the "next big thing" indicator only identifies the potential for a secular trend change. Therefore, EWJ goes on my watch list, and then I use more traditional technical analysis (i.e., moving average crossover) to enter and exit the market.


Anonymous said...

Hi Guy.

New to your blog, but I'll be tuning in more regularly.

Can you explain to me what the "next big thing" indicator is?

Guy M. Lerner said...

Please follow this link for more about some of the indicators I have developed:

"Abour My Indicators"