In early March (March 7th 01:00 update) http://members.OptionInvestor.com/archive/intraday/030702_3.asp we talked about the recent decline in the U.S.$ and some weakness in U.S. Treasuries that hinted some money may have been moving out of the U.S. and to foreign markets. Not long thereafter, Merrill Lynch made an interesting call that stocks based in Japan may offer bullish investors more "bang for their buck" and offer greater upside that many stocks here in the U.S.
With that, we went snooping and found shares of Japan-based Sony Corp. (NYSE:SNE) $58.08 +2.83% as an attractive bullish candidate for subscribers to get some "Japan" exposure into their accounts.
This morning, shares of Sony (SNE) gapped to a new multi-month high as the U.S.$ continues to weaken against major foreign currencies, but the US$ is at the very same level as our March 7th update, with the Yen at 0.00795. This is a good sign I feel for Sony (SNE) bulls as per our previous scenario, money is rotating toward Sony, but perhaps at a faster rate than the Yen.
Sony Corporation Chart - Daily Interval
Shares of Sony (SNE) have gapped to new multi-month highs and the stock looks set to test the $60.91 level near-term. Volume has been on the buy side in recent sessions and has been steady at over 300,000 in the last week on a daily basis, which has been about 20% higher than previous average volume of 250,000 shares in March and April.
Also interesting is today's action in the MSCI Japan Ishares (AMEX:EWJ) as noted from a subscriber earlier today. When I pulled up a daily and weekly interval chart of this security, I observed some very bullish technicals forming.
MSCI Japan Ishare Chart - Weekly Intervals
The Japan Ishares (AMEX:EWJ) have broken above some significant near-term resistance at the $8.70 level and look poised for a longer-term bullish move. I'd be very open to legging into a bullish position at current levels. Almost 2-years to the date, a similar break higher took place in the EWJ, but volume was not nearly as robust as it has been lately. This has me wanting exposure now. I'm not entirely certain we will see the pullback like that found in mid-May of 1999, but we know what to be looking for. For now, bulls can be looking long, stop under $8.00 and targeting the $10.69 level, which would be a count based on the reverse head and shoulders pattern. The count would be performed from the "head" $6.71 to the "neckline" $8.70 and adding the difference back to the neckline.
Not a call to sell U.S. stocks
We've also discussed some of the potential outcomes of a weakening U.S.$ and it is important that subscribers understand that past commentary. Many of the U.S.-based multinationals have been hurt by a strong U.S.$ as it has made some of their products and services less competitive overseas. The recent declines in the U.S.$ helps elliviate some of those pressures. Recently I turned more bullish on the Dow Industrials (INDU) 10,288 (unchanged) partially due to this reason, but also for the technical strength the Dow has been exhibiting.