Tuesday, October 8, 2013
No Signs Of Bottoming Out On Stock Market Yet
TOKYO (NQN)--Tokyo stocks rebounded for the first time in four trading days on Tuesday, with the Nikkei Stock Average ending the day's trade at 13,894.61, up 0.30%.
Before the market closed, however, there were concerns that the benchmark index might close lower for the fifth straight trading day. If that had happened, it would have been the longest losing streak since mid-November, when Shinzo Abe, as president of the Liberal Democratic Party, began introducing the economic policies he would deploy if his party won the general election in December.
At one point Tuesday morning, the index sank below 13,800 for the first time since Sept. 3. Despite the rebound at the market's close, there is little expectation that stocks will soon bottom out.
The Dow Jones industrial average closed the overnight session down 136 points as the deadlock between Democrats and Republicans over the U.S. fiscal 2014 interim budget continued through Friday. But the Nikkei average was holding firm Tuesday because the issue had been factored in on the Tokyo market on Monday, according to Takuya Takahashi, senior strategist at Daiwa Securities Co.
The failure of the Democrats and Republicans to agree on an interim budget meant that some U.S. government departments and agencies were shut down on Oct. 1, a key factor behind the market's adjustment phase. Though investors appear worried that the debt ceiling may not be raised by the deadline of Oct. 17, the majority of market players apparently believe that a U.S. default is unlikely.
"Hedge funds will likely close out their short positions for now," said Takatoshi Itoshima at Commons Asset Management Inc., who predicts the Nikkei average will stop falling in the 13,700 range temporarily. While progress has yet to be seen in budget discussions this week, developments in Washington have played out as expected once it became clear the Republicans were digging their heels in over Obamacare, President Barack Obama's health care reform initiative.
Many gauges are suggesting that stocks will stop falling over the short term. As of Monday, the price-earnings ratio of all the Nikkei Stock Average components was estimated at 15.23, the lowest since Sept. 2. The slow stochastics indicator was 9.12%, falling below 10% for the first time since July 31. An indicator of 30% or below means stocks are being oversold.
Many market players seem to see the conflict between Democrats and Republicans as merely political posturing and expect some kind of a compromise to be reached before the Oct. 17 deadline. An official at a Japanese brokerage warned that stocks will rebound sharply if discussions in Washington to prevent a default make progress while more and more gauges suggest stocks are being oversold, which is prompting short-sellers to become cautious.
On the other hand, Yutaka Miura, senior technical analyst at Mizuho Securities Co., said gauges show stocks appear less overvalued but that there are few signs that the market will bottom out any time soon.