After a major blowout like on Friday, updating the technical image becomes really important, some would say paramount. Since the Nikkei 225 was closed today, I’ll opt to look at the futures for that contract instead, from investing.com.
The most interesting thing is that we’ve broken the mid-May 2013 – to – January 2014 peak line, in those cases going from 16 000 to 16 330, and implying a line until today of ~16 800 Nikkei 225 points. Where does this set us up to? Well the first thing is the June-July 2007 double peak, at a level of 18 340, but there might be meaningful resistance around the 18 140 levels as well, since the June futures closed on that level and thus the July futures opened there. The April 2006 high, along with the October 2007 high are also at the 17 560 levels with massive tails, so there might be some intermediate resistance over there.
Do I believe that this intermediate level will be particularly important? Nope, we have aligned momentum with the stock market in a fundamentally different way than ever before, and Japanese capital thus exists in a fundamental disequilibrium until this momentum fades and there is new trading around levels very much different from these. I will go over another momentum addition later. If we crack these levels, the next top we should target is the April 2000 high, at around 20 830, or 22.5% up from here! The Japan market seems to be running on cycles, and first we have roughly 7-10 month cycles in the post-Noda world, and now we get a 7 year cycle going with us! Interesting! For anything above this (one can dream, right?) we need to look in an even longer perspective, and we end up with this chart (not updated since last week, sorry) here:
We see on the trend line-approaching peaks that we have near HSI-like demarcations at (2n + 1) * 1000 levels from ~21 000 all the way up to 27 000 points! We also see that pre-2000 we manage to squeeze two attempts in at the red trend line while we only got two in after Y2K. The business cycles here were longer and drew deeper on the Nikkei, but with the Abe + Kuroda combo we seem to have broken free of this trend line as the market ate into it consistently during the last two years.
What else is there then? Well of course the yen! First, read the intermediate discussion I wrote off some Bloomberg-reported technical analysis earlier in October, and then come back and hit the jump!
All the levels they were talking about, save the 25 000 Nikkei level, have been breached! So, it’s probably time to look back at some long-term technical analysis on the Nikkei:
The chart is a bit cluttered I know, but here’s a quick, easier-on-the-eyes recap:
- The 112.67 level mentioned in the Bloomberg article is comfortably breached. At current market levels around 113.3 we are looking at the 114.4 (38.2%) level and then the 118-to-121.6 range (50% and 61.8% respectively).
- The 5-year Bollinger Band is expanding from below price and expanding in width enough that the lower band is accelerating downwards. There can be a lot of surf here! (Especially once more corporates start investing cheap cash in Japan outside the country.) It does signify another step away from the tight downwards regime that was accepted as a part of Japanese economic life pre-Kuroda and Abe.
- The 2-year upper Bollinger Band has started curving upwards after an overall tightening period following no more stimulus from the powers that be. In curving upwards now, off the back of a very strong SMA trend, it is leaving more room for expansion with increased volatility, and allows a momentum blowout in the normal January-March window when the yen normally falls. Until the 5-year upper Bollinger catches up more it might be a little bit premature to call levels above 118, but if we are between 118 and 121.6 going into the new year, the first-quarter run could easily add to levels above 125!