The Chart du Jour

Market Timers' Perfect Set-up

April 11, 2001

By, Barclay T. Leib

Chart constructed using Advanced GET End-of-Day

There is an arbitrage game out there called mutual fund market timing. It revolves around time-zones and works like this: The Nikkei closes weakly in Tuesday's Tokyo trading. Later that day, as the sun travels westward, the European and U.S. markets happen to rally like crazy. So what's the probability that the Japanese market will have a catch-up rally in its Wednesday session? Pretty damn high.

And yet several U.S-based mutual fund companies will still allow investors to buy shares at a yet-unknown but presumably low Tuesday closing NAV of a Japanese- or Asian-sector fund all the way until 3:30pm New York time Tuesday afternoon. These fund companies certainly don't encourage this type of short-term "time-zone" arbitrage behavior, but because of conventions within the mutual fund industry, they have a hard time avoiding it. Then, as a final step to the process, the mere inflow of such capital into these funds actually makes a higher Wednesday open in Japan a near certainty.

And so it was that the Tuesday market behavior transpired globally. And given the chart alignment of the short term 60-minute Nikkei chart above, the Nikkei is certainly in a position to post a powerful 5th wave advance to potentially finish a Wave I up. We'd favor 14,324 as the minimum target we'll head for.

As we type, the Nikkei just opened up +190 points, but that still is not much compared to the potential possibilities we see here.

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