In this briefing:
- China’s Sluggish Inbound Tourism Industry
- Japan: Moving Average Outliers – Year-End Blues
- What Just Happened In The Stock Market?
1. China’s Sluggish Inbound Tourism Industry
How can we explain the fact that in the five years from 2012 the number of tourist visits to China fell from 11.6 to 10.5 million per year? True, business and family reunion visits have risen, but such a culturally rich country should have more tourists.
2. Japan: Moving Average Outliers – Year-End Blues
MARKET COMPOSITE
TRADING ZONE – As of last Friday, the Japan All Market Composite has now entered a bear market, having declined by 20% from the January 23rd high if Y757t. At the close, only 8% by number and 11% by value of Japanese stocks were trading above their weighted composite of 5, 20, 60, 120, and 240-day moving averages. These were the lowest closing values since February 2016 when the All Market Composite reached a low of Y475tand offer an entry point for a short-term trade for those happy to hold over the extended New Year Holiday period.
Source: Japan Analytics
BREAKOUTS – The ‘Breaking Bad’ percentage reached 11% on December 4th, the tenth-lowest reading in three years bu thas yet to fall below ‘-15-. Adding the Breaking Above and Breaking Below percentages together provides a more straightforward view of the 15% threshold that has marked previous short and medium-term turning points, and which again we have yet to reach.
SECTORS
SECTOR BREAKDOWN – The top six sectors measured by the percentage above the weighted average of 5-240 Days are all, predictably, domestic and defensive – Food, Beverages & Tobacco, REITs, Information Technology, Internet, Media and Utilities. Equally predictable are the bottom half-dozen – Banks, Non-Bank Finance, Autos, Metals, Electrical Equipment and Chemicals.
COMPANIES
COMPANY MOVING AVERAGE OUTLIERS – As with the market and sectors, out moving average outlier indicator uses a weighted sum of the share price relative to its 5-day, 20-day, 60-day, 120 day and 240-day moving averages. Extreme values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen.
THE 100% CLUB – As of Friday 21st, there were 16 extreme positive outliers and 622 extreme negative outliers. The number of extreme negative outliers suggests we are a short-term bottom.
In the DETAIL section below, we highlight the current top and bottom twenty-five larger capitalisation outliers as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note.
3. What Just Happened In The Stock Market?
The velocity and ferociousness of the recent U.S. equity market weakness caught even cautious investors like us by surprise. Our social media feed has been filled with extreme bearishness. Opinions are now becoming bifurcated. Either the decline is the signal of something big or the fall in stock prices represents a buying opportunity for fundamentally oriented investors.
It is impossible to make a buy, hold or sell decision without some understanding of what the market is discounting. Further analysis reveals that investors are discounting only a mild U.S. slowdown in 1H 2019, but no recession. From a technical perspective, both the U.S. and global markets have violated well-defined uptrend lines, just as they did in 2015 and 2007. It remains an open question as to whether the trend line breakdowns will result in just a mild pullback, or a deeper bear market.
From a technical perspective, we would look for conditions when the market stops responding to bad news. One example can be found during the eurozone and Greek Crisis of 2011. During the summer of 2011, the eurozone was at risk of breaking apart, and European leaders were having almost weekly summits on how to solve the problem. At times, it seemed that Europe was leaderless, and no one was in charge. The crisis lifted after the ECB unveiled its LTRO program to backstop the banking system in order to buy time for member states to engage in structural reform. Sometime during that process, the market stopped falling on bad news. We are not there yet.
Our recommendation is to monitor the evolution of financial risk, as well as the evolution of investor psychology, in order to determine the timing of a market bottom
