This week, including today, there are several market moving events that are impacting Nikkei 225 and its quest to find downside price supports. Today there is the Topix free float weight change and the JPX rebalance that added about 2bln of volume spike into the close. We are hearing that there are margin calls in some of the small cap names as well. As the market searches for price a floor could very well be forming between 20,200 and 20,000 in the Nikkei 225 Index as a lot of the negative news has already been priced in. If in fact a floor has formed, I still like names such as Murata, TDK, Nidec, Kyocera and several small caps – I will resend the list.
Still, my concern is the tendency for a strong yen and the speed at which it surfaces in the market, and without warning its ability to take out well-thought-out equity positions. To be specific and precise, if USDJPY suddenly drops from 105.40 to 104.60, then the stronger yen could impact the Nikkei 225 index and many yen sensitive names that we like. So a firm and less volatile yen is part of establishing longs in our index and tech heavy complex. We should be looking at Autos as well, some names are starting to perform well.
Final point to consider: Going into the next Payrolls release on September 6, we could see a string of positive economic releases, a firming up of the US dollar and possible support in S&P 500 and Nikkei 225. I will study flows and charts this weekend, provide fresh ideas.