Nikkei posts best weekly rise in 7 months

By Aiko Hayashi

TOKYO (BestGrowthStock) – Japan’s Nikkei average booked its best weekly rise in seven months on Friday and market players said more gains may be in store after it moved further away from a seven-month low and held above a key retracement support.

The Nikkei rose 0.5 percent on the day, and gained 4.1 percent this week, its best weekly performance since December, as pessimism about the outlook for the global economy receded.

But shares of Inpex plummeted more than 14 percent at one stage to a record low after Japan’s top oil and gas explorer unveiled a $6.7 billion global offering that will dilute the value of its existing stock by over 50 percent.

The sale, aimed at financing Inpex’s giant Ichthys gas project in Australia, is the biggest equity financing deal among non-financial companies in Japan this year.

The Nikkei has been mostly stuck in bearish trend since April, hurt by weeks of dismal economic reports, including U.S. jobs data last week and a further strengthening in the yen, but some market players said Nikkei seems to have sunk far enough.

“The market has factored in worries about Europe and the possibility of a double dip in the U.S. economy, and it’s now most likely found a floor,” said Kazuhiro Takahashi, general manager at Daiwa Securities Capital Markets.

The Nikkei currently stands well above a key support level of 9,200, the 50 percent retracement of its move up from its March 2009 low to its April 2010 high. It has also tested 9,000 three times recently, also making that level strong support should 9,200 be broken.

“Yesterday’s gains were largely due to short-covering of futures in thin trade, and the market lacks further strong upward momentum to keep climbing. Also, there’s the upper house elections at the weekend,” said Takahashi.

Japan’s ruling Democratic Party could fall well short of Prime Minister Naoto Kan’s target in Sunday’s upper house election, media polls showed, putting his job at risk and threatening to stall steps to rein in massive public debt.

Although market players expect little impact from domestic politics on the Japanese stock market, investors also do not want to actively take positions right before the elections, with some saying a change of prime minister in such a short period of time would be seen as negative.

In light trade, the benchmark Nikkei added 49.58 points to 9,585.32, while the broader Topix was flat at 861.21.

Early this week the Nikkei slid as low as 9,091.70, just above a November 2009 low of 9,076 and a July 2009 low of 9,050.

But the Nikkei jumped 2.8 percent the previous day, boosted by short-covering by investors who believe the benchmark’s slide this week was overdone.

The Nikkei’s next upward target is around 9,700, its 25-day moving average, which is a proxy for a one-month moving average that is closely watched in Japan. The next target lies around 10,250, a recent high hit on June 21.

On the charts, the outlook for the Nikkei appears to be brightening. Its MACD, a measure of market momentum, has started to pick up, while its slow stochastic — a measure of how oversold the market is and whether it is in a short-term up or down trend — has turned higher after falling in June, moving away from oversold territory.

U.S. earnings begin in earnest next week when Alcoa Inc reports on Monday, and Japan’s reporting season gets into a full swing later this month.

“Japanese corporate earnings will likely beat previous forecasts and that hasn’t been fully reflected in current stock prices. The Nikkei could reach 10,000, either later this month or early next month,” said Soichiro Monji, chief strategist at Daiwa SB Investments.

On Thursday, Wall Street made a late-session rally after first-time U.S. jobless claims dropped to their lowest level in two months and handful of large retailers reported solid sales.

Some 1.67 billion shares changed hands on the Tokyo exchange’s first section, not too far from a four-month low marked last Monday. Advancing stocks outnumbered declining ones, 818 to 683.

INPEX TANKS

Inpex shares ended the day down 12.8 percent at 415,000 yen, after losing as much as 14.7 percent to a record low of 406,000 at one stage, as investors fretted about the announcement of the massive share offering.

“I think the timing is a little bad. Given the schedule (of the Ichthys project), the company has more time. It would have been better to wait for a recovery in the market,” said Deutsche Securities analyst Tomohiro Jikihara.

Shares of exporters rose, as the euro was firm near a two-week high against the yen at around 112.40 yen.

Sony Corp rose 0.9 percent to 2,445 yen and TDK Corp gained 1.2 percent to 5,080 yen.

Canon Inc gained 1 percent to 3,480 yen after the Nikkei business daily reported it is likely to post a near three-fold jump in its operating profit for the January-June period.

Shares of Kasai Kogyo jumped 5.5 percent to 306 yen after the Japanese car interior maker said on Friday it would build a plant in China to supply its products mainly to Chinese car maker Chery Automobile.

(Additional reporting by Taiga Uranaka; Editing by Edwina Gibbs)

Nikkei posts best weekly rise in 7 months