Bad Omen – Japanese Market Crash a Sign of Things to Come in U.S. – May 23, 2013

Today’s 7.3%+ crash of the Japanese market (NIKKEI Index) should give U.S. investors pause.  The NIKKEI, which has been on a similar run as the U.S. markets, was trading well above 15,000 before today’;s trading, just as the Dow Jones Industrial Index is trading above 15,000.  Both markets have been driven by government policies intended to stimulate their respective economies, and in both cases these policies have not resulted in economic growth, but instead in skyrocketing stock markets.  Commentators pointed to a number of factors to try and explain why the NIKKEI dropped by such a huge amount today, especially after it was up over 2% during the same trading session, meaning that it actually fell about 9.5% from the day’s high.  Weak economic data from China, a strengthening yen (the weak yen has been one of the reasons the Japanese market has run-up so much of late), and concerns over U.S. Fed policy regarding QE3 were all cited as reasons for today’s crash.  The reality is that the Japanese market dove today because it is overbought, plain and simple.  The market has run up to an unsustainable level, and when this happens, it doesn’t take much to send it into a tailspin.  We face the same risk here at home.  U.S. stock markets are super-heated and any negative news, even something trivial, could send our markets reeling.  The Dow is up 16.7% year-to-date.  A similar drop to today’s losses in Japan could strip almost half of the entire year’s gains in one session.  Markets take months and sometimes years to make gains that are then erased in weeks, days, or even in some cases, hours.  Investors should take note of today’s action in Japan and should see this as a strong warning sign of what is to come in U.S. markets.

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