This Market Is a Contrarian's Dream

This is the kind of behavior you'd expect after a massive drawdown – not after a strong move higher.

Today, investors are throwing in the towel on a major foreign market. The crazy part is, this part of the world hasn't been losing money... It's been booming.

Its stock market is up 12% this year. That's the kind of return that should bring investors pouring in. But instead, they're turning away.

There's good news, though. This is a contrarian investor's dream...

We have a major market that's performing well. The trend is clearly moving higher. But investors are scared... And they're selling.

It's a perfect setup and, based on history, one you need to consider putting your money to work in now.

Let me explain...

Investors usually flood in as a market rallies. But that's not happening right now in Japan.

Despite Japanese stocks jumping 12% this year, investors are giving up on them.

Shares outstanding for the major Japanese exchange-traded fund ("ETF") – the iShares MSCI Japan Fund (EWJ) – have plummeted in recent months. They're now at a five-year low.

You might not realize it, but shares outstanding are a fantastic tool for tracking investor sentiment...

ETFs like EWJ liquidate and create shares based on investor demand. If investors aren't interested in Japan, they'll pull money out of the fund and shares outstanding will fall. But if investors are "all in" on Japanese stocks, money flows in and share counts rise.

Usually, a falling share count happens alongside a major bust. But despite the recent rally, investors still aren't interested in Japanese stocks.

Shares outstanding for EWJ are down 31% in 2019. Take a look...

Shares outstanding for EWJ have fallen for nearly two years straight. And that negative sentiment is a huge positive for contrarian investors.

Think about it... The trend is in place, and investors are scared. It's the perfect time to buy.

History shows this is a powerful setup. To see it, we just need to look at the handful of other times shares outstanding for EWJ were at multiyear lows. Similar cases came up in 2010, 2012, and 2016. All were great times to buy Japanese stocks...

In July 2010, shares outstanding were hitting their lowest levels since 2004. And over the next six months, Japanese stocks rallied 18%.

We saw another case in late October 2012. Investors were once again throwing in the towel on Japanese stocks. But that was a terrible time to bet against this market... EWJ went on to rally 28% over the six months, a massive short-term return.

Then, shares outstanding for EWJ hit a multiyear low in July 2016. And again, EWJ rallied, returning 9% in six months.

Today, investors are giving up on Japanese stocks... But history says you should do the exact opposite.

The trend is up, and investors are scared. That makes Japanese stocks a fantastic opportunity right now.

Good investing,

Chris Igou

Further Reading

"In many cases, folks will only own stocks from their home country," Chris writes. "And that narrow focus can cause you to miss out on amazing opportunities." Learn more about another market outside the U.S. that is set for outperformance right here.

"If you find what everyone hates, it usually means that asset is poised for a rally," Chris says. Recently, he found a sentiment extreme in a foreign currency that points to big upside ahead. Learn more here: This Beaten-Down Currency Could Rally Double Digits.

Market Notes
THIS 'STAR POWER' BRAND IS REWARDING SHAREHOLDERS

Today, we’re looking at a company with one of the strongest brands in the world…

Investing in companies with world-class brands is a great wealth-building strategy. These businesses build trust with their customers, which means they can usually charge premium prices for their products. Today’s company has one of the best brands around…

Nike (NKE) is a $145 billion athletic apparel giant. Through its celebrity endorsements and quality sportswear, the company has built a huge, loyal customer base. This is great for sales… In the most recent quarter, Nike grew its revenues by 7%, to $10.7 billion. The company also loves passing its success on to its shareholders. In the same quarter, Nike bought back nearly $1 billion worth of shares… And it plans to keep the buybacks coming.

As you can see in today’s chart, shares of NKE are up about 80% over the past two years, and they just hit a fresh all-time high. As long as people still shell out cash to wear the Nike logo, this stock should continue higher…