Tuesday, March 15, 2011

Global stock markets panic due to Japan's crisis.

Just as you thought things couldn't get any worse, they did. A huge sell-off occurred on all major exchanges around the world. Japan's Nikkei 225 index lost another astonishing 1,015 points (▼ 10.5%) due to fears of a nuclear meltdown. This morning the Dow Jones was down over 200 points and European stock markets booked similar losses. The VXX ETN shot up almost 5% (trade recommendation yesterday).

Are the markets overreacting?

I think this huge sell off of Japanese stocks is clearly an 'aftershock' reaction. A sell off of this magnitude is in my opinion a little bit exaggerated, but it will take some time for investors to realize that. When that momemt comes we have to start looking for bargain stocks. At the moment we have to pay close attention to volume on the Japanese stock exchange. How much is being sold at a given time. And it seems to me, the downwards spiral has just begun.  Unfortunately things will get a lot worse in Japan before they will get better. A global chain reaction is imminent.

Take a look at the Nikkei 225 index so far this week;

Not a pretty picture at all. For the past 4 days, nothing but losses with the last two trading days (after the quake) being the worst. In the last week alone the Japanese stock market lost over 18%.
This trading week is crucial. As soon as we start to see some positive numbers it means we have more buyers then sellers and could mean the bottom has been reached. If not, I'm afraid we'll see more substantial losses over the course of the rest of the month.
I'm waiting for any positive sign, at the moment, getting the nuclear plant under control would spark that. As of right now I'm staying away from any stock. My main focus is on ETFs/ETNs.

The following targets for short term trading (end of this week) once news from Japan settles in;

ETN: OIL Bullish, Expiration Month: March
SPY and QQQQ: ▲ Bullish, Expiration Month: March
VXX: Bearish  , Expiration Month: March
EWJ▲ Bullish, Expiration Month: April

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