The Nikkei 225 Stock Average is less than 2% away from its calendar year low of 15,273 set in mid-August. It could test that level based on a 415 point (2.6%) drop (to 15,255) in N225 futures trading Friday in Chicago. Trading will likely be light on Monday since it is Veterans Day in the U.S., although stock exchanges are open.


The bullish case for this week is that the Nikkei is oversold and bargain hunters will pick up shares. From a technical perspective, the TOPIX A/D 25-day moving average is near 70, a level widely regarded as safe to get in stocks. A Nikkei article suggests corporate stock buy backs may also support stocks.

However, bears have plenty of factors in their favor, including a strengthening yen (note, we are skeptical of this resulting in buying of domestic stocks in the near term), sustained high commodities prices, and a note in a Nikkei online article mentioning further selling of Japanese stocks by hedge funds before year’s end is feared due to fund liquidations requiring 30 to 45 days of formal notice.

As of Friday’s close, the N225 was trading at 1.74x book, 16.6x forward earnings, 17.5x trailing earnings, and a forward yield of 1.3% (trailing: 1.2%)