RISING OIL HURTS JAPANESE YEN AND STOCKS -- BUT HELPS CANADIAN DOLLAR AND STOCKS

JAPANESE STOCKS UNDER PRESSURE... Last Friday I showed some regions of the world that were benefitting from rising energy and commodity prices. Two of the top performers were Canada and Latin America. Both are big producers of natural resources. It works the opposite way for Japan. Japan is totally dependent on imported crude. That helps explain why Japan has been among the worst international performers for the past few months. Chart 1 shows the Japan iShares (EWJ) having peaked during April. It's been gradually eroding since then and is trading under its 200-day moving average. Its relative strength (vs. the US) also peaked during the spring and is now trading at the lowest level since May. To make matters worse for American investors, the Japanese yen has also been falling. Chart 2 shows the yen also peaking in the spring and falling near the lower end of its price range. Fears that rising oil prices could hurt the Japanese economy more than most other countries hurts its currency and its stocks. That's a bad combination for American investors because they lose both in equities and in the currency translation. It's usually better to put one's money in countries with rising currency -- like Canada.

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CANADIAN DOLLAR HAS BEEN SURGING ... The Canadian Dollar has been soaring since May. Chart 3 shows it in the process of challenging its early 2004 peak. The Canadian stock market also turned up during May, when its currency started to rally. The Toronto Index appears on the verge of breaking through its summer high to achieve a bullish breakout. Its relative strength line (vs. the US) has been rising since the spring and is even closer to a new 2004 high. For Americann investors, Canada holds three main benefits -- a rising currency, a relative strong stock market, and rising commodity prices. And also rising energy prices.

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