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Whenever the Japanese economy is brought up in conversation, there is usually a general agreement that their economy is decades away from improving. Some believe it will never improve and they’ll default and go bankrupt. John Mauldin describes them as

“a bug in search of a windshield”.

It can be easy to remain bearish on Japan, as their economy has been mired with troubles since it’s peak in 1989, but their are some subtle signs that Japan could be attempting to put in some type of bottom. As a market technician, I’m less concerned about what ifs, than I am with what is. And if you can set aside their demographic problem with an aging population, stagnant growth prospects, and currency issues, I’d like to present one positive side I see that Japan has going for them.

Their long term techical picture is suggesting that a long term bottom is trying to be put in. I’ve annotated 2 charts below that better illustrates this point. The first is a simple 20-yr monthly chart to show the wide base and support area around the 7500 area. We actually dipped a little below support but I view that as a slight positive because the chart was able to rebound where it could have easily continued on to new lows. As I said before…there are enough bears to go around where Japan is concerned.

We’ve seen this action before from 93′-99′ as 14k was a support area for a long time and it eventually broke down. But as you can see from that period that sideways markets do present some decent buying opportunities. So even if this is not the bottom, there is an opportunity for this to trade back to the 15-17k area.

A bottom has to start somewhere, and out of all the predictions and forecasts I’m reading for 2011, nobody is focusing on Japan as an area of potential future growth. From a pure contrarian point of view that interests me somewhat and when you combine that psychology with these charts, one could begin to see where I’m coming from. … [visit site to read more]