Dead Cat's Bounce: Embattled Bulls Push Back Bears on Central Bank Stimulus Hope: Japan Nikkei Soars 5.9% Leads Asia

As always, bulls will not let the bears dominate without a fight. 

So on the back of speculation of political support, Japan's Nikkei 225 roared by an incredible 5.88% to push the bears back today...

Here is a sample of how media sees today's massive stock market rally in Japan

From Bloomberg (bold mine)

Japanese stocks surged by the most in four months as investors weighed prospects for central bank stimulus and bought back into a bear market to cover short positions.

The Topix index jumped 5.6 percent to 1,374.19 at the close in Tokyo, the most since Sept. 9 and paring its worst monthly loss since October 2008. The Nikkei 225 Stock Average soared 5.9 percent to 16,958.53, also supported by a report the Bank of Japan is considering extra monetary easing. Global equities halted losses on the brink of a bear market as oil rallied and the European Central Bank signaled it may boost stimulus.

“We’re seeing short squeeze galore,” said Mikey Hsia, a trader at Sunrise Brokers LLP in Hong Kong. “Much of this is technical. Japan has had big moves for three days in a row now -- it’s becoming common.”

The monster rally has not been limited to Japan, as most of Asia closed significantly higher (as shown above). But it was Japan's equities that stole the show.

Meanwhile, Europe's stocks has likewise been strong.

From another Bloomberg report (bold added)

Stocks rose around the world, extending Thursday’s rebound from a 2 1/2-year low, on speculation that central banks will expand stimulus measures to counter turmoil in financial markets. Oil surged with emerging-market currencies, while haven assets retreated.

European shares headed for the best week in two months, the euro approached a two-week low and Spanish and Italian bonds rallied after European Central Bank President Mario Draghi indicated he may bolster economic support as soon as March. Crude was poised for its steepest two-day rally in five months and the Russian ruble rebounded from a record low. Asian stocks climbed the most since September on speculation Japan and China may also take steps to calm markets.

The turnaround in sentiment came amid signs central banks may be prepared to act after $7.8 trillion was erased from the value of global equities this year on China’s slowdown and oil’s crash. Diminished inflation expectations and a strengthening yen are seen as increasing pressure on the Bank of Japan to enlarge stimulus at its meeting next week. China will keep intervening in its equity market to “look after” investors and has no intention of further devaluing the yuan, Vice President Li Yuanchao said.

“It’s a classic oversold bounce after Draghi’s comments yesterday and the noise on Japanese stimulus overnight, the question is where do we go from here,” said Veronika Pechlaner, who helps oversee $10 billion at Ashburton Investments, part of FirstRand Group. “It’s become harder and harder for stimulus to really support the economic fundamentals so it doesn’t mean a medium- and long-term change, but at least we have a bit more stable trading environment for a couple of days.”

Emerging market currencies like Philippine peso has likewise rebounded considerably due to the Pavlovian effect on the prospective central bank stimulus.

From the Businessworld,

HIGHER-yielding emerging market currencies rose against the dollar in Asia on Friday, after a jump in crude prices and hints the ECB could unleash more stimulus helped cheer traders.

The South Korean won and the Malaysian ringgit were among top gainers, after taking a battering over concerns of slowing global economic growth, the impact of a US rate rise and a slump in oil to below $30 a barrel.

European Central Bank chief Mario Draghi helped contain the pessimism clouding markets on Thursday when he said the eurozone central bank would "review and possibly reconsider" its monetary policy in March.

Now back to the Nikkei. Last September 9, 2015, the Nikkei made a titanic 7.7% rally which was much bigger than today

I showed this

And with the above, I pointed out the following: (bold added)

Of the 9 incidences (excluding today’s fantastic rip) only two 1,000+ points rally represented a tailwind for a continuing run-up. That was in 1987 and in 1988.

For a terse background, Japan’s Nikkei topped in December 29, 1989. This was then followed by a horrific more-than-a-decade long crash.

The next 6 one day sprints were all bear market bounces!

In sum, all eight giant one day spurts occurred during the Nikkei’s boom-bust cycle with a bias for bear market bounces. Most of them transpired during the climax or during the transition from boom to bust.

While the October 2008’s big move was followed by a 38% rally, it hardly brought a major bullmarket. It was in the late 2012, or four years after, when a resurgence of a quasi bullmarket occurred—mostly due to ABENOMICS.

As part of the Abenomics program, the Bank of Japan (BoJ) has been mandated to include stocks (ETFs) in her large scale asset purchasing program. In November 2014, Japan’s pension fund, the GPIF, was also enlisted to participate in the asset shift favoring stocks.

This means that whatever bull market Japanese stocks have recently experienced have been mainly owed to the BoJ and to the GPIF. Or said differently, without the BoJ and GPIF, today's bullmarket may not have existed.

Perhaps even today's blitzkrieg may have been inspired by these institutions.

The point is, today’s run hardly guarantees of a reversal in favor of the bulls.

If today should serve as a tailwind for an upside momentum, then probably like 1987-8 it could mark a near climax for the bullmarket.

Now the above represents the updated chart (including today's 5.9% rip)

The level when the bulls made the 7.7% September 2015 charge has been much higher than today. This means that the one day 7.7% ramp hardly inspired a sustained run.

So what the above has signified have been the following: 

One the Abenomics 2.0 stock market run has been fading. And the ramification has been outsized volatility characterized by huge price swings. 

Second, big moves like today resonate on 1987 to 1992. 

Third, take a look at the recent actions, the Nikkei has just collapsed. And since no trend goes in a straight line, today's 5.88% jump represented a natural reflexive reaction from a severe drop. 

Fourth,  experts quoted by media sees them too, "short squeeze" and "oversold bounce" equates to a dead cat's bounce or a sucker's rally

All these seem to indicate that Japan's bear market has just taken a pause.