There’s been much talk recently about a turnaround in Asian stock markets, particularly China. While I’m not convinced (yet) of a turnaround in Asia in general, I am sitting up to take notice of one market most have forgotten about; Japan.

We expect to see the Nikkei move opposite the Yen. The basic case is as the Yen declines, it makes it easier for Japan’s exporters to compete making them more profitable.

The Nikkei has been turned back by its 144 day moving average on three different attempts to rally since last July. Last week the index returned to the moving average once again. While I look for a pullback in the early part of this week, I suspect this may be the time for a breakout by the Nikkei as the Yen appears to be in a free-fall.

One clue as to the future direction of the Nikkei index can be found in examining its performance versus the rest of the world. Creating a ratio chart between the Nikkei and the MSCI World index shows a break out as the Japanese index pushed above the declining trendline.

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