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Nikkei bouncing back as Japan stares at bull market

19 Feb 2013 THE AGE - ROD MYER



IF YOU think we suffered during the GFC, then spare a thought for the Japanese. The financial boom of the late '80s saw the Nikkei stock index peak at 38,957 points in December 1989 and property went up so much that some estimated the Emperor's palace, with its 3.4 square kilometre gardens, was worth more than the state of California.

Anyway, the bust was ugly with the sharemarket falling to lows of 7971.72 and the average home in Tokyo falling to 1/10th of its boom-time value. There was still sharemarket money to be made in that time as the market did fluctuate. But the best time to get in was the low point as the Nikkei climbed an impressive 227 per cent after that. You had to be nimble as it turned in June 2007 and tested the old lows again.

Since 2009 Mark Umansky, a certified financial technician and councillor with the Australian Technical Analysts Association, sees the Nikkei as moving into interesting territory. Despite testing old lows again in 2011 it has been making useful gains in recent times as the "higher low" formations on the chart testify.

Indeed, Umansky believes it may be about to prove it has been in a four-year accumulation phase when patient professionals have been building up portfolios.

That confirmation would occur if the index breaks through 11,500 and stays there and would be an indication that further gains are in the pipeline. What's more, if the market continues to rise and breaks through the high reached in 2007 of about 18,100 Umansky says the market could then be entering a rare phenomenon known as a 10-year accumulation phase showing the professional investors have been patient and confident over a very long period.

If that comes to pass he says Japan may be in for a major bull market that could see stocks reach levels of around 28,000. But for that to happen, the economy would have to perform well and the market would have to make its way through a number of resistance levels shown on the chart.

There's a bit that could go wrong along the way, with the government promising a $US224 billion ($A217 billion) stimulus package while the national debt is predicted to reach 237 per cent of GDP this year. For heavily indebted Italy the figure is 127 per cent and about 105 per cent for the US.

This column is not financial advice. rodmyr@gmail.com