Takaya Tomita’s CHART CLUB presents a fact-based review of growing concerns about worsening supply-demand conditions. It reports on the Nikkei Average’s sharp fall on 22 October, persistently high margin-buying balances and deteriorating unrealised profit-and-loss ratios, while reviewing how the market may move in response to next week’s earnings announcements and major events.
The Nikkei Average plunged by ¥1,713 on 22 October, closing at the session low. After a further decline at the start of the week, the Psychological Line recorded 3 advances and 9 declines (25%) on the 21st. The market rebounded the following day, but fell below a key level on the 22nd.
Margin-buying balances remained high at ¥6.664 trillion as of applications received on 16 October, while the unrealised profit-and-loss ratio deteriorated to minus 10.41%. This was almost the same level as minus 10.45% as of 17 July, although the Nikkei Average was then down to the level of its 29 July low.
The deterioration in the unrealised profit-and-loss ratio suggests worsening supply-demand conditions, with movements in AI- and semiconductor-related stocks appearing to have had a particularly heavy impact. If the market decline continues, deteriorating profitability could spread widely, making forced or cut-loss selling more likely.
The earnings announcement season begins next week, while uncertainty in the Middle East, the US FOMC meeting (27-28) and the Bank of Japan Monetary Policy Meeting (29-30) are ahead. These events could trigger a market rebound, but some views call for caution until the market recovers the 25-day and 75-day moving averages.