TOPIX Core 30 outlook and key points

- "The TOPIX Core 30 briefly fell to 441 on 1 September before subsequently rebounding. Concerns about a further downturn spread when the index broke through the November 2009 low of 457, but ultimately it did not fall that much, indicating that investor pessimism may have peaked. With the wave count pointing to a consolidation phase ahead of the next rally, we think the index will lack direction until around Oct–Nov, when the next nearterm (four-month) cyclical bottom is due. However, we think there is greater potential for a rally now that forex intervention by the government and BOJ has brought yen appreciation to a halt. Whereas defensive stocks have outperformed since April, the charts have started to point to a turnaround for economy-sensitive and export-related stocks. As such, we think investors would do well to gear themselves for a change in market trends."
• "Defensive stocks in the ascendancy since April, but this may change: Defensive stocks have been in the ascendancy since April, but we are gradually starting to see signs of change. For example, Kansai Electric Power [9503] posted a new high for the year in September, bucking the downturn in the  market as a whole, but technical indicators such as the RSI (25-days) started to flash red, and performance relative to the TOPIX also showed signs of peaking out."
• "Charts already giving off positive signals for some economy-sensitive and export-related stocks: By contrast, some economy-sensitive and export-related stocks have started to show signs of bottoming. Indeed, some charts have already begun to give off positive signals. For example, Shin-Etsu Chemical [4063], Komatsu [6301], Nissan Motor [7201], Honda Motor [7267], Canon [7751], and Mitsui & Co [8031] have broken through the upper limit of the resistance band (cloud) on the daily Ichimoku Kinko Hyo equilibrium chart, and their MACD based on share prices relative to the TOPIX has moved into positive territory or moved upwards within negative territory. Companies such as Nippon Steel [5401], JFE Holdings [5411], Sony [6758], and Mitsubishi Corp [8058] appear likely to join this group in due course."
• "Other stocks for which charts are giving off positive signals: Meanwhile, the charts have started to give off positive signals for stocks other than those sensitive to the economy and exports, including Japan Tobacco [2914], Astellas Pharma [4503], Tokio Marine Holdings [8766], Mitsubishi Estate [8802], Nippon Telegraph and Telephone [9432], and NTT Docomo [9437]."
• "No need for excessive pessimism despite ongoing downside risks for some stocks: By contrast, we see ongoing downside risks for some stocks, including megabanks such as Mitsubishi UFJ Financial Group [8306], Seven & i Holdings [3382], Toshiba [6502], Toyota Motor [7203], and East Japan Railway [9020]. However, we see no need for excessive pessimism, as most are stocks that look to be trading in their bottom range over the longer term and/or stocks with limited downside risk, based on technical indicators."

Nomura Technical Insight 20100921

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