JP equity market outlook (Continuous Updates)

Making this the post to keep track of my outlook on the JP equity market as time goes on.

It’d be a great learning for myself to look back and see how my thought process changes and also be more disciplined.

Also cool to see whether my outlooks are right or wrong in hindsight later.

Just learned something from the course that I’ve already heard from YouTube videos so want to do a summary here.

The idea of using bollinger band and identifying the possibility of a new trend coming and also if it’ll keep trending.

So it was almost scary accurate when Emin said very early this year, when Nikkei went from 34k to 40k, that it’s overheated and probably will come through an adjusting period.

Unfortunately I was still a complete beginner and succumbed to FOMO where I lost quite a bit.

Anyways his prediction was it’ll go up and down for a little while, maybe a few months, maybe 1 year, then it should go up to another uptrend where it’ll probably hit 50k.

It came April and there was a big adjustment, losing 10% within a month.

Then it just kind of stayed up and down from there until now in June.

The previous squeeze

So by reading the Bollinger band there is a concept called “the squeeze”.

Where the volatility narrows and it’s the sign of a new trend coming in the near future.

Before the big jump from 34k to 40k, there was a squeeze of around 2 months as well. Although before the squeeze, it was actually a decently long downtrend of around 6 months with a tiny uptrend toward the end.

The current squeeze

So the current situation is, from Jan to Mar it went from 34k to 41k.

Then it comes back to 37k at the lowest.

Now it’s been squeezing for almost 2 months and I feel like the next move is coming.

Emin said as well it could be another downward adjustment or maybe it’s already time for the big upswing to 50k

My next move – as of Jun19 2024

My current holding of ~HK$300k (15% portfolio) currently in N225 is for long term investment, so I’m not going to touch that. (it’s in NISA anyways so I won’t).

However when I see the next big uptrend coming, I’m definitely jumping on there and riding that 20-25% jump.

If it’s a downward adjustment, I COULD short it but I think it’s just a bit too risky and too little return.

For the upside, maybe I’ll jump in a trade around HK$200-300k bet and either move some bonds over or just short yen to go in long there. Cutting off some head and tail there, if I can pick up 15-20% in a couple months which is maybe HK$30-50k that would be pretty cool.

The risk would be maybe during the uptrend something major happens like a war or some unforseen economic downturn. I’ll try to make sure when it’s trending up that it’s hugging the Bollinger band upper limit, if things change enough just abandon half or entire position

Hopefully limit the downside to 10% perhaps … let’s see how it plays out.

Jul12 2024 update

N225 jumps from 38k to 42k (+10%) in just a matter of 2 weeks. Complete breakout of previous highs plus super upside momentum now, in the over-purchase zone.

It could be a big rally and honestly maybe I missed the early wave already … so I entered an extra 5% of portfolio into 1321 and 2644.

I was wondering if it could be that next huge wave up to 50k already happening.

However the new U.S. CPI data came out last night and it was lower than expectation. U.S. 10-yr rate dropped over 2% in a matter of minutes and yen increased over 2% at one point, back up around 0.5% afterward.

But the recent rally was probably due to good U.S. performance, low yen, and corporate reform, and the first 2 factors are going in the opposite direction since last night, so I am seeing maybe N225 will come back down to 40k for the time being and maybe see that downward adjustment after all.

In any case it does seem to be harder that I imagined, catching the next big wave. I missed the first few bollinger band hugs because I was wondering if it’ll get hammered down at 41k, the historical high. Turned out it broke right through 41k to 42k via the momentum.

It’s really hard to say whether it’ll go back to consolidation or if it’ll break through again. I thought it probably would but with the U.S. market yesterday maybe not.

Picking up 15-20% with a 200-300k bet is pretty unrealistic in hindsight. I did go with a 100k bet so far and it might have turned out to be wrong.

For now, I’m happy with my [portfolio+2.5% 2644] long term investment and I’ll hold onto that for now but I think I’ll let go of the [2.5%portfolio 1321] if it turns out the market open low today.

Little Summary

It’s really damn hard to time the market – especially from a technical analysis standpoint.

My TA style is mainly buying into strength and selling into weakness, and choosing the right moments to attack.

But LT investment you can’t just choose the right moments, you are in it at every moment. From backtesting it seems trading in and out with TA will probably be mostly -EV moves, at least at my current level.

So for now, I’ll try to move based more on fundamentals (USDJPY, US market, PE, etc.) and also try keep the movements to a minimum (at the moment, 15-20% portfolio allocation).

In fact if it drops a lot then I’d have to rebalance and buy until 15%, and if it expands too much above 20% then I’d have to sell to rebalance – which is probably better for long-term investment, selling into strength and buying into weakness.

Jul13 2024 update

Indeed the market dropped hard. N225 -2.45%, 2644 -4.7%

So false breakout, and I had to retrace ¥1.4M (¥870k 1321 + 50% ¥513k 2644) and maintain balance without being over-exposed to risk.

My current view is, it’s probably going to end up as a false breakout and re-adjust between the 42k and 39k range.

2 days ago I’d have bet the uptrend continuing due to cheap yen and strong US market. Both are reversing hard so it’ll probably keep the downward pressure for a while.

However the US market has calmed down last night, in fact it isn’t really weak, it’s just shifting of capital from big caps to smaller caps due to increase likelihood of a rate cut in Sept. So that shouldn’t keep too much pressure on the JP market.

On the other hand, the USDJPY dropped pretty dramatically to from 161.8 peak to 157.9 – 2.5% drop. Some are suspecting intervention and that’ll keep the market alert for higher future intervention likelihood and probably keep some downward pressure on the USDJPY which might be pressure for the JP market too.

To be honest though the JP market hasn’t received the blessing from the decreasing yen in the last 2 months though – probably due to observations of the yen price reversal at anytime (intervention, BOJ rate hike).

But in the medium terms (several months) if the USDJPY sees more stability and strong trend upward, I would foresee that the blessing of the weak yen should catch back up and it’ll bring out an explosive wave of increase.

In the medium-long term I am bullish on USDJPY anyways so come intervention or rate hikes so that’s “good materials” for JP market.

Current Outlook

Therefore my new current outlook is – consolidation between 39k-43k, with minimal risk of disturbance in July FOMC and BOJ meetings (most likely no-change and no-change).

If it breaks below 39k, it might go as low as 36k and I am looking to increase my position around 37-38k.

If it breaks above 43k then it might be the next big wave and it can be 46-50k I am guessing. Unlikely this year? maybe next year? I’d imagine it happening in 2025 if the USDJPY trend continue and no hard landing in the US.

Jul18 2024 update

So there seems to be a sector rotation mirroring the RUS2000 in the US market.

The logic as I understand is, as the yen climbs higher, internal demand companies like in the TSE growth 250 will benefit.

Anyways like the RUS2000, the TSE-G250 has been beaten down but saw a nice jump in recent days.

I’m putting in ¥1M in 2516 as a diversification in the JP portfolio.

Also 2644 has dropped like crazy due to the earlier USD.JPY drop, US rate cut expectation, and then the US policy tightening on global chipmakers toward China. -13% in just this past week.

I think it’s actually a good chance to buy in though. I’ll wait for a signal on reversal then probably start by entering ¥500k and look to enter another ¥500k to a total of ¥1M eventually.

The near-term distribution would be something like:

  • 75% (6M) – Rakuten N225 index
  • 12.5% (1M) – 2516
  • 12.5% (1M) – 2644

N225 is decently heavy-weighted on the chipmakers so I don’t need a lot of 2644 – but still want some exposure since I think it’ll be the future in the next 5-10 years.

I might sell off some N225 eventually to add to 2644 as well. Probably not until next year though.

Update – I’m just not going to go with 2516 for now. Just too much news watching and wondering about the short-term movements lately and I feel like I need to move back to a more laid-back investing style for the long-term investment.

Updated distribution:

  • 75% (6M) – Rakuten N225 index
  • 25% (2M) – 2644

Only buying 1M for now and putting the other 1M in gold. Will move it to 成長枠 next year? might go in later this year if things are looking up?

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