Wednesday, June 5, 2013

NIKK Tokyo Nikkei Daily Chart Fallilng Wedge Oversold Gap Potential Island Reversal

The Nikkei falls on the hari-kari sword overnight. Abe talks of structural reforms to complement the fiscal and monetary programs but the absence of details and long time line for reforms to occur sent the dollar/yen under 100 and down towards 99.70, then recovering 99.80, now dropping again printing at the lows at 99.56. And, of course, the Nikkei drops on the lower dollar/yen as well as U.S. futures, the markets ebb and flow in direct relationship to the yen.  Stronger yen = lower dollar/yen = lower Nikkei = lower equities. Weaker yen (as the BOJ pumps the easy money talk) = higher dollar/yen = higher Nikkei = higher equities. The weaker yen is the main reason the SPX printed new all-time highs this spring.

The green dot shows the close a few hours ago at 13015, dumping -3.8%. We watched the top form in the Nikkei, as well as top in the dollar/yen and bottom in the yen over the last couple weeks. The drop in the Nikkei is intense, from 15980 to 13K in only 10 days, -18.5%. Definitely a correction (in excess of -10%) and a hair away from a bear market (-20%). The Nikkei is falling 200 points a day on average. Just as the rising wedge, overbot conditions and negative divergence forecasted the top, now price is dropping into a falling wedge, oversold conditions (stochastics but not RSI) and positive divergence is under development. Note how the apex of the wedge ends at the gap fill at 12.6-12.8K. The Nikkei remains on an island from 13K and higher, exactly where it closed, so an island reversal would occur with a drop straight down to 12.6K and lower. A dead-cat bounce is needed but the MACD line continues to slope downwards and the RSI is not oversold so lower lows are likely in store moving forward. In addition, the weekly chart is weak and bleak so after any bounce some further weaker price action, likely through the 12.6-13.1K zone is in order. The purple lines show a funky H&S with neckline at 13K and head at 16K so the target is 10K if the 13K fails.

The dollar/yen, Nikkei and U.S. equities are all joined at the hip as highlighted above. Thus, a strong flush lower to wash out the Nikkei and U.S. stocks will be identified by further weakness in the dollar/yen while a bounce and relief rally will occur if the dollar/yen moves back above 100 and heads higher. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

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