Whenever the Japanese economy is brought up in conversation, there is usually a general agreement that their economy is decades away from improving. Some believe it will never improve and they'll default and go bankrupt. John Mauldin describes them as "a bug in search of a windshield".

It can be easy to remain bearish on Japan, as their economy has been mired with troubles since its peak in 1989, but there are some minor signs that Japan could be trying to put in some type of bottom. As a market technician, I'm less concerned about "what ifs", than I am with "what is". And if you can set aside their demographic problem with an aging population, stagnant growth prospects, and currency issues, I'd like to present one positive side I see that Japan has going for them.

Their long-term technical picture is suggesting that a bottom is trying to be put in. The first is a simple 20-yr monthly chart to show the wide base and support area around the 7500 area. We actually dipped a little below support, but I view that as a slight positive because the chart was able to rebound where it could have easily continued on to new lows. As I said before … there are enough bears to go around where Japan is concerned.

We've seen this action before before 93'-99 'as 14k was a support area for a long time and it ever broke down. But during that sideways markets there were many decent buying opportunities in the form of trends within long term trends. So even if this is not the bottom, there is an opportunity for this to trade back to the 15-17k area, which would represent a significant percentage gain around 30-40%.

A bottom has to start somewhere, and out of all the predictions and forecasts I'm reading for 2011, nobody is focusing on Japan as an area of ​​potential future growth. From a pure contrarian point of view that interests me somethat and when you combine that psychology with these charts, one could begin to see where I'm coming from.

The keys to take away from a shorter term perspective which has me starting to turn bullish on Japan is we did not form a traditional double bottom in November as the bears ran out of gas. The market then recovered 2 months of consolidation in 5 trading sessions, paused, and is in the process of forming a new up-leg. As long as it lasts above the recent highs, which has formed a new support level, the Nikkei can build upon its successes, and has a change to do something positive for a change.

Source by Jeff Pierce Jr