Nikkei avoids Toyota’s woes

Kathleen Brooks
JAPANESE corporate culture has taken a beating in recent weeks as one of its biggest companies, Toyota, has recalled more than 9m vehicles worldwide over fears about faulty accelerator pedals, leaving its reputation in tatters.

Contracts for difference (CFDs) traders might think that Toyota’s troubles would affect the Nikkei 225, Japan’s stock index, due to its size and scale. But the Nikkei is a price-weighted average index, which means that all companies have an equal weight in the index. So although Toyota is Japan’s largest company – it employs more than 300,000 people and the birthplace of the car manufacturer was renamed Toyota City – its current situation should not overly distort the index.

In fact, all signs point to a pick-up in Japan’s corporate sector. GDP data showed yesterday that growth expanded at a faster-than-expected rate of 1.1 per cent in the last three months of 2009. What’s more, corporate capital spending rose by 1 per cent, suggesting that Japan’s companies are getting ready to expand – this could boost profits in the medium term.

The GDP growth was supported by a rebound in exports – good news for Japan’s export-oriented firms, which make up much of the index. Jonathan Fry, director of private wealth at wealth manager Jonathanfry, says China is now the biggest market for Japanese exports. This is significant because the recent surge in the yen relative to the euro has made Japanese exports to the Eurozone less competitive.“The developed world export story is over for Japan,” Fry says. He adds that Japan’s proximity to south east Asia could give it a competitive advantage due to its cultural links with the region. This bodes well for Japanese firms as economic power moves east.

The true extent of Japan’s recovery will be revealed in April when the 2009 reporting season begins. A long position in the Nikkei could be profitable in the run-up to the earnings season, due to the signs of strength emanating from the corporate sector. Fry points out that Nissan, another carmaker, should have strong results in 2009 – profits increased by nearly 7 per cent in the third quarter on a year earlier.

The 10,000 level in the Nikkei is psychologically important for investors, says Fry.
Currently the index is at 10,013, which could be a good buying opportunity for those willing to take a risk that it will move higher. CFDs are a good way to trade the Nikkei because they have no expiry date and, if earnings look weak, they can be closed at any time.

Toyota may be mulling its future, but for the Nikkei the stars could be aligned at last.

My pick: Sell gold at $1,115
Expertise: Technical analysis
Average time frame of trades: 5-10 days
The gold price remains under pressure since peaking in December 2009. The outlook for the precious metal does not look good and the price can only manage lower highs and lower lows. A new low to watch out for is $1,045 and the market is in the process of bouncing back towards a falling trendline resistance at $1,115. From this level there is the possibility of another downside extension. Sell gold at $1,115 for a $1,030 objective. Keep a stop at $1,165.

My pick: Short silver at $15.10; remain short gold at $1,070 and Nasdaq 100
Expertise: Fundamental and technical analysis with risk management
Average time frame of trades: 1 day to 1 week
Volatility remained elevated last week but overall, we have seen prices tentatively move higher after a month of risk aversion. Fundamentally, the market’s focus continues to be on the details of a potential bailout for Greece and its outcome will define my existing positions. However, in the event that the bailout falls short – indicating further woes for the country – I will be ready with a short silver entry at $15.10, a stop at $15.90 and initial target at $13.60.

My pick: Stay short crude oil
Expertise: Global macro, classic technical analysis
Average time frame of trades: 1 week–6 months
I sold crude four weeks ago at $79 after the weekly chart showed a Bearish engulfing candlestick pattern below resistance at the top of a rising wedge formation. After correcting higher, prices are now reversing below this resistance level to a falling trend line, which started at the previous high reached in November. A move below $71.26 indicates the start of a bearish trend. Remain short crude oil initially targeting $66.10. Keep a stop loss at $78.