Last week I noted I was bullish on Japan and its ETF the iShares MSCI Japan Index (EWJ). A subscriber of ours today asked what components of the EWJ I find intriguing and that could propel the index higher.
It should not surprise anyone to learn that the companies that have potentially the most powerful chart patterns are: EXPORT, AUTO, and FINANCIAL. What else? We are talking about Japan Inc., here, right?
These are Honda (HMC), Toyota (TM), Mitsubishi (8306 JP), Mizuho (8411 JP), and Sony (SNE).
In particular, the Japanese automakers/exporters have chart structures that are very promising, and which should propel the index higher.
While Japanese automakers look compelling, one should also keep an eye on the U.S., at least on Ford (F), which IÕve compared in a chart below with Toyota.
On the one hand, Toyota has been in a powerful 2-year bull move, and appears to have ended a 4-5 month correction in May right against its up trendline. Now the price structure is poised to resume the bull move, heading perhaps for a retest of the high near 138.00. My sense is that TM's bull trend is a reflection of world export demand, depreciating yen, projected gas efficiency in new models, hybrids, and China.
On the other hand, Ford has been basing for about nearly 2 years as its price structure absorbs the 2004 to 2006 bear phase. The Ford chart is potentially explosive above $9, which if hurdled and sustained will trigger an intermediate term target of $11-$12.
My sense about Ford is that it "deserves" to enter a powerful recovery phase because it has downsized, cut costs, confronted the unions about healthcare and pension costs, and generally become a leaner and meaner competitor in the U.S. and abroad.
Mike Paulenoff is author of the MPTrader.com (www.mptrader.com), a real-time diary of his technical analysis on equity markets, futures, metals, currencies and Treasuries.
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