Without seeming rather Eeyore-ish we really shouldn’t get too excited by the sharp rally in Japanese stocks overnight, because as the headline suggests (from the Telegraph) by drawing a comparison to 2008 readers are pointed, inadvertently or very subtly, in the right direction.
There are two key things to focus on when looking at these volatile moves, the first being that this bounce recovers only part of recent falls, which themselves have come after a long, sustained, equity rally (on the back of the heroically unsuccessful and costly period of Abenomics, which seems designed to drive Japan towards catastrophe at an accelerated rate). The chart below covers the last six months, with up days in white, down in red:
Click/Tap to enlarge
However the bigger issue is that reference to 2008, which implicitly draws us back to a time of crisis and increased volatility. Then we did see some epic rallies, as well as some rather unnerving, stomach churning falls during October 2008 in particular, before grinding reality caught up with the market; as this chart from August 2008 to February 2009 demonstrates:
Click/Tap to enlarge
Calling short term market direction during such periods of volatility is nothing more than guesswork and investors should focus on the bigger picture before deciding on medium to long term investments. Trading such volatility for the short term could get painful very quickly.