If you’re going to chase bubbles, you had better watch out for air pockets! By May 22nd the Nikkei 225 was up more than 50% for 2013. Speculators and gamblers who believed in the hype have received an unfortunate reality check in the days since. In only ten days, the Nikkei is down a punishing 17%.
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You can see on the chart below that volume (the bar chart) of trading in the WisdomTree Japan Hedged Equity Fund (the vehicle of choice for speculators) really began to pick up in April. Today, only two short months later most of the folk who bought in at those prices are sitting on losses. That doesn’t even consider those who bought in May.
When prices start erupting in parabolic fashion it’s best to take an extremely skeptical view of such movement. It rarely ends well.