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Falling Stocks in the Land of the Rising Sun

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As recently as four months ago, some Wall Street brokerages were calling for increased exposure to Japanese equities. They based this advice on data that seemed to indicate Asia's leading economy was in the early stages of a recovery.

This rebound, however, may have been short-circuited by continued financial weakness across the globe. The Japanese economy is largely fueled by multinationals such as Sony, Toyota, Matsushita, and Hitatchi. Persistent worries of a double-dip recession in the U.S. and a faltering Latin American have weighed heavily on shares of these companies. Today's negative unemployment news out of Germany provides more evidence that worldwide consumer spending may not pick up in the near future.

Exporters have also been negatively impacted by the multi-month downtrend in the U.S. Dollar (DX00y), which has led to a strengthening in the Japanese Yen (JY02U). This makes Japanese products a tougher sell overseas. Domestically, massive bank loan defaults and deflation concerns have contributed to investor skittishness.

The Nikkei-225 has not responded favorably to these developments. Yesterday's action saw the index spike under 9000 level and set a 19-year low. 19 years...Our bear market looks almost tame in comparison! Japanese ADR's are also showing weakness, with SNE, HIT, and MC all trading near multi-month lows. HIT (-1.2%) in particular may be flirting with disaster, as shares teeter above support at $50.00. A trade at this level would create a double- bottom sell signal on the point-and-figure chart. Should a breakdown occur, HIT could make its way towards the 1998 lows near $40.00.

Kent Barton
Option Investor

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