The 25-day Toraku index, which compares advancing and declining shares on the Tokyo Stock Exchange, has fallen below 70, a level some traders take to signal that shares have dropped too far. The time may not be right for a turnaround, said Yutaka Miura of Mizuho Securities, a unit of Japan’s second-biggest bank by assets.
“The Nikkei may have further to fall as investors are becoming more risk-off amid revived concern over Greece and Europe,” Miura said. “In recent years, the Toraku buy signal has shifted toward 60 from 70 in some cases so there could be more room to fall.”
There have been six times since 2000 when the Nikkei 225 deepened its slide more than 5 percent even after the Toraku fell below 70. Five of those instances occurred since 2006. The Nikkei plunged 36 percent in the 16 trading days after the Toraku threshold was breached in October 2008, as global markets plunged following the collapse of Lehman Brothers Holdings Inc.
Trading volume is key to a lasting rally, Miura said. The Nikkei 225 advanced 5 percent in six sessions with average daily volume of 1.2 trillion yen ($15 billion) after the Toraku bottomed last year on Aug. 24. The market soared 61 percent in the 12 months after the indicator fell to 68 in April 2005. Average daily volume was 2.1 trillion yen.
The Nikkei 225 has fallen 13 percent from March 27, when the gauge closed at its highest since September. Shares dropped amid political turmoil in Europe, slowing growth in China and a strengthening yen.
The recent market slide sent the value of stocks on the broader Topix Index (TPX) to 0.91 times book value, the lowest since Jan. 16. A number below one means investors can buy a company for less than the value of its net assets. The price-earnings ratio fell to 12 times, the lowest since October 2008.
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Masaaki Iwamoto in Tokyo at Miwamoto4@bloomberg.net
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