Japan market summary for Wednesday (Nov. 21)
Nikkei 225 Stock Average: -373.86 (-2.5%) to 14,837.66
Nikkei 225 futures Osaka: -390 (-2.6%) to 14,820, Singapore (SGX) -440 (-2.9%) to 14,475, Chicago (CME) *11/20 +405 (+2.7%) to 15,185
TOPIX: -30.55 (-2.1%) to 1,438.72; Advancers 422 x decliners 1,223 (unch. 78), New highs 2 x new lows 124
Nikkei Jasdaq: -7.79 (-0.4%) to 1,726.84
Yen: strengthened 1.2% to the 109 level (109.10-15) against the dollar for the first time since ‘05; strengthened 0.9% to the 161.45-50 level against the euro

Notes: So much for the talk of a broad rally and especially the bullishness for small caps among overseas investors. (See the 400+ point rally in N225 futures in Chicago above). Don’t say you weren’t warned. We’ve been skeptical of a big Q4 rally like we’ve seen in year’s past and remain mostly bearish on equities in the near-term, even despite the severely oversold conditions. The holiday shortened week (Thanksgiving [Thursday] USA and Labor Thanksgiving Day [Friday] Japan) only makes matters worse in terms of liquidity and volatility.

In fact, unless you are exposed to Japan and in the house of pain (and can’t take the pain), this may be a great time to buy (and hold). Think of Warren Buffett and view this as a buying opportunity as the fickle “Mr. Market” is dumping shares indiscriminately.

Bullishness for small caps was mentioned above. Renowned small cap investor Hideo Shiozumi of the Shiozumi Fund says the time has come for small caps to lead the market for approximately over the next twelve months. His fund had done well in recent trading according to a Reuters interview published this past Monday, but that’s after horrendous losses in recent years that all but erased the tremendous gains of years prior. The best value lies in the smaller capitalization stocks, but this is also the trickiest and most frustrating segment in Japan.

For those keeping score, the Nikkei renewed its calendar year low and is currently at a 17-month low (first close below 14,000 since July 26, 2006). The yen meanwhile, is at its highest level against the US$ since June 21, 2005.

Selling was not limited to Japanese stocks, as equities took a beating across Asia. There are a number of factors at play, which when given seem like we’re beating a dead horse. (Get ready for the yen carry trade unwinding stories). What’s interesting now is trying to determine exactly how strong the yen will get and at what point investors will feel comfortable to get back into equities.

If it’s any consolation, Japanese stocks were already lagging far behind the rest of Asia, so they seemingly have far less to fall than Hong Kong, for instance. Also, times like now represent great share buyback opportunities. Since Japanese firms tend to be less leveraged than U.S. counterparts there’s some leeway here.

MOTHERS lost 2.4% and HERCULES fell 2.1%.