Wednesday, 7 August 2013

Nikkei setting up for another 60%+ decline?

First up is the monthly chart showing that earlier this year the Nikkei rebounded lower from a 22 year old trend line. 2007 saw the beginning of the previous such rebound, which was followed by a greater than 60% decline in to late 2008 and early 2009.

Will this years decline mimic the previous decline? Nobody knows, but I believe it is worth comparing the price action of the previous decline to the price action exhibited by the Nikkei in the past few months.

The next chart zooms in to the daily chart for the 10 or so months surrounding the 2007 peak, and the subsequent chart directly covers a similar length period surrounding the May 2013 peak.

To my eyes there are big similarities between the market action from July to the end October 2007, and the action from late May 2013 to now. Price action relative to the moving averages hopefully makes this similarity clear to you. End of October 2007 was a great time to get short, just as the 18 day moving average was about to cross below the 40. If the analogous behaviour continues, with the 18 once again curling lower toward the 40, now will be a great time to get short the Nikkei. Especially if the market breaks the nearby trend line.

2007 to 2008


By the way, the Nikkei is the market that my readers seem least interested in, judging by number of clicks. I am not posting about the Nikkei in an attempt to be perverse, and not only because I believe it may be offering a great trade setup, but also because I believe it has lead the way for global stocks this year and will continue to do so. This is a function of QE being the global market focus, and the Japanese central bank being the most outrageous exponent of QE. No matter where you live and which stock market you trade, you need to keep an eye on the Nikkei.

Apologies to my regular readers for recent lack of posts. Life has been hectic. trading has been good and cricket has been on TV too much...