Every once in a while, a chart comes along that’s just begging to be owned.
Japan’s Nikkei 225 Index has been carving out the largest structural base in the entire global equity market—and it’s been doing so for over three decades.
I’m talking about a consolidation that began back in the late 1980s, shortly after Japan’s infamous asset bubble popped.
That’s nearly 35 years of sideways action… building energy for whatever’s next.
Think about that for a second.
Markets don’t usually sit still for this long. But in the rare event they do, they eventually resolve these long-term holding patterns, and the result is rarely subtle.
These types of breakouts tend to unleash ferocious upside moves, as built-up pressure from decades of coiling finally releases.
We want to own those breakouts every time.
And right now, the Nikkei is on the cusp of completing a historic consolidation pattern.
The index has cleared its 1990 highs and is pushing decisively into territory unseen since the Japanese economic miracle. Technically, this is a massive potential breakout—and the implications are just as huge for forward returns.
But here’s the best part. As US investors, there is usually no way to make a clean bet on a local index from another country. Of course, you can craft the trade and hedge the currency yourself. It won’t be perfect, but an investing professional could get close.
We don’t need that in the case of the Nikkei, though. The perfect vehicle already exists.
It’s called DXJ—the WisdomTree Japan Hedged Equity Fund.
Why DXJ?
This ETF provides investors with exposure to Japanese equities while hedging against currency risk. It does all the boring stuff for you, so you can just own the Nikkei!
And it does an excellent job at it, as illustrated by the overlay chart above.
I guess my point is… if you want to buy the most epic base breakout in stock market history— you can. It’s already made up and ready for you by the good folks at WisdomTree.
Jeremy Schwartz, Global CIO at WisdomTree, was on the Morning Show today talking about it. I always enjoy our conversations, and today, the timing couldn’t be better. This breakout looks imminent.
I bought some for myself in the IRA as soon as we got off the show… and I plan to buy more when the Nikkei breaches 41,000.
I’m going to use the 261.8% Fib extension around 108.50 as my stop for DXJ.
We'll get confirmation that this breakout is in the books with a move above 117. That is likely to coincide with NKY 41K, so I’ll finish my position there on strength.
I’ll start taking profits around 150, which is the next Fib extension.
If you’re a fan of classic technical setups—breakouts from long-term bases, strength on both absolute and relative terms, and clean vehicles to express your thesis—this is as good as it gets.
Stay tactical. Stay bullish. And don’t sleep on Japan.
I talked about this chart and others during the international equities segment of our monthly conference call last night. Sign up here to watch the replay.
With participation expanding overseas, it’s important to pay attention and have exposure to the right areas. I think DXJ is a great vehicle to use as an anchor position for developed international exposure.
And if you’re in the market for something spicier, we’ve been adding leverage to our Asia bets via Breakout Multiplier lately.
