This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

What's Next for Stalling Japan ETFs?

Stocks in this article: DXJEWJFXY

NEW YORK ( FMD Capital Management) -- The Japanese economy got off to a roaring start through the first half of 2013 and then subsequently stalled due to concerns about the effectiveness of the governments quantitative easing efforts.

Prime Minister Shinzo Abe has been on a quest to inflate the Japanese economy through aggressive strategies to reverse decades of stagflation. However, the resulting inflationary effects have raised consumer prices and hampered confidence in Japanese stocks.

A quick check on the iShares MSCI Japan ETF (EWJ) shows the fund has been mired in a broad sideways trading range since hitting a high in May. This index represents over 300 Japanese stocks that have struggled to match the growth of the U.S. market over the last six months.

Courtesy of StockCharts.com

Investors have made big bets on Japan this year as Index Universe reports both EWJ and the WisdomTree Japan Hedged Equity ETF (DXJ) in the top five for year-to-date inflows.

Combined, these two ETFs have garnered over $14 billion in new assets in 2013. This WisdomTree fund differentiates itself from the widely held iShares Japan ETF by carrying an additional currency component that hedges its exposure to the Japanese yen. Put simply, DXJ will outperform EWJ when the yen is falling in value against rival foreign currencies.

Despite the fantastic gains early on, both funds have been unable to break above their prior highs and consistently been bumping up against overhead resistance. This may be due to an inverse pattern in the CurrencyShares Japanese Yen (FXY).

Courtesy of StockCharts.com

Both EWJ and DXJ were spurred to new heights as FXY fell precipitously early on. However, that growth was curtailed when the yen started to level out. Global investors are obviously watching the manipulations in the currency markets closely as a signal for strength in Japanese stocks. There is a strong inverse correlation between the two.

It's my belief that a breakdown in FXY below its current levels would precipitate a breakout in EWJ and DXJ to new highs. Consequently, a move for FXY back above its 200-day moving average at $100 would be a negative sign for Japanese stocks and likely send investors fleeing for the safety of cash.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,805.41 +127.51 0.76%
S&P 500 1,964.58 +13.76 0.71%
NASDAQ 4,483.7150 +30.9230 0.69%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs