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Chart of the week – Sun rises for Nikkei 225 after long winter

Posted By Lance Lai On In Markets | No Comments

There has been very little change on the charts since last week despite the fears in Europe and Cyprus.

I rarely talk about the Japanese market as it rarely leads markets, having been in such a downward spiral for so long.

However this week’s chart, the Nikkei 225, has been chosen to illustrate what happens when sentiment turns positive on a market which has been in such a slump for some time. It is also used to illustrate the extent of the global bull run we’ve witnessed.

[1]The Japanese market has risen 45% in a little over four months and this is marked on the chart where the index bottomed on 13 November 2012. This market has moved very similarly to the US market, where on 29 November 2012’s Switzer TV Show, 1448 was identified as a “G” or good level to be broken. In Japan, that same number is about 9,838, where once broken, saw the market rocket off.

There are three bullish indicators to four bearish indicators. On the surface this seems like it is nicely balanced, however if you factor in the four levels the index could fall, with the worst fall being some 22% lower, the cautious trade is not to buy into this market now.

Reflecting back to Australia or Western markets, the concluding comment to the perplexing question of whether to buy now or later has remained the same for several weeks now.

If your time frame is longer term, then there is an argument to simply buy some more now if you have not already done so. If we are specifically referring to the Japanese market, I’m not sure if this applies as 45% in four months is more than sufficient, if not too much.

This market is overdue for a pull back.

Bullish indicators

  1. The 200-day moving average is firmly pointing upwards.
  2. Weekly time frames indicate more upward momentum may be expected without a blow out to the topside. A projected “topside” of 12,815 or 13,825, as ridiculous as it sounds, is 2.5% from here and 10.5% higher is technically
  3. There is little doubt we are now well and truly trading to the upside of the “G” = good level of 1,448 in the US S&P500. In this chart, the G level is 9,838. We are 27% above this level now. The market has indicated confidence in the future.

Bearish indicators

  1. Indicators are topping out on daily time frames.
  2. Indicators are ripe for a pull back on weekly time frames.
  3. The low of 13 November indicated on the chart was 8,619. In four months the index has increased by 45% without a meaningful pause.
  4. There are so many levels the market could fall back to and still have this uptrend remain as a major theme. This has been indicated on the chart: Down 7.4% to 11,574
    • Down 9.7% to 11,289
    • Down 12.6% to 10,934 – this is indicted in yellow as it is a key level
    • Down 22% even to 9,739 – this is indicated in yellow as it represents a pull back to Break Out levels

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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