I don’t have a yen for Japan shares

Many investors have been jumping into the Japanese stock market in recent months, encouraged by the yen weakness and the hopes (and prayers?) that Prime Minister Abe can wave his magic wand and hey presto! stocks turn bullish again.

Yes, there has been a huge revaluation of Japanese shares but the latest rally to the 31 December high was the final wave 5 up.  The rally has been losing momentum in December, and now we have seen a 1300 pip decline off the top.  This is the result of a crowded trade toppling over.

But today, the market has declined to a critical support line which I have been running for some time:

Just admire all those accurate touch points since April.  You might think someone was waving a magic wand over the market to make the turns when it hit the line.  There’s food for thought for you.

Now the market is testing this line once more and if my EW labels are correct, we are in for a massive break of this line.  My money is on this scenario.

Yesterday’s US jobless claims showed a big jump and stocks are still selling off.  So that litmus test was passed – bad news really is bad now.

Looking around the markets, global stock markets are all well off their highs and are finally following in the footsteps of all asset markets priced in US dollars.  Gold, Treasuries, Crude oil, Copper, Grains, Base Metals are all off their all-time highs and are in bear markets.  This backs up my claim that we are in a deflationary environment – and it is going to get much more intense as the depression rolls along.