The iShares Japan ETF (EWJ) has been experiencing some growth over the past week alongside U.S. equities. What’s unique about the advance that’s taken place in EWJ is the spike in volume that got the rally started.
PAY ATTENTION
Volume is a critical element in applying analysis to a security and while price gets the most attention, volume should not be ignored. When we see an explosive pop in bullish volume, it makes it harder for buyers to sustain that momentum.
BIG NUMBERS TRADED
As of last Friday, the 50-day average number of shares traded in EWJ was 16.57 million, so when we see 90 million shares trade across the exchanges, my interest is peaked. There have only been seven other times since 2006 when volume in this Japan ETF has hit or exceeded 90 million shares, so we know this isn’t a normal occurrence.
Looking at the past week of volume we must take into account the Thanksgiving holiday and the historically light trading volume that surrounds this holiday, which partially explains the drop in volume. However, even in a ‘normal’ trading week it’s unlikely that buyers could have sustained an even 50 million volume trend, which creates a crack in the thesis of a sustained advance for EWJ.
With volume dropping, we can see that price has hit its 200-day moving average. While not always acting as a brick wall for EWJ, the 200-day MA has been tough for bulls to break through and sustain over the past six months.
UPCOMING ELECTION
In a few weeks Japan will hold an election which will likely have an impact on the Japanese capital markets. While we can see the level of resistance at the 200-day moving average and the drop in volume after the almost-record setting spike, we’ll see how things play out with the Japanese election I’ll be watching to see if buyers do in fact step back in to continue the current rally.
Disclaimer: The information contained in this article should not be construed as investment advice, research, or an offer to buy or sell securities. Everything written here is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned.
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