As mentioned in a previous blog here on Spreadbet Magazine, I had an “academic” argument over the Nikkei / Japanese economy in the late 1980s and which probably explains why I am merely the “UK’s Leading Chartist” as opposed to say, the “world’s leading chartist” That said, the former editor of Shares Magazine, Ross Greenwood, did describe me as the latter!
However, enough digression and “what could have been” and ontothe serious business of what is going on as far as the Japanese stock market is concerned…
I have to admit before I go into this that I am not objective at all in this matter. I simply do not believe in Government intervention of any kind – and thus I am anti bank bailouts, anti welfare state, and anti money printing. I would like therefore the so called ‘Abeonimics’ experiment to fail miserably and the latest rally for Japanese stocks to be one of the umpteen false dawn rallies that have peppered the time from my youth to middle age. As mentioned in the interview with Lucian Miers in Spreadbet Magazine (see here page 74 – http://issuu.com/spreadbetmagazine/docs/spreadbet_magazine_v17_generic), if you could simply reflate a recession-hit economy with money printing, there would never have been an economic downturn in history! Such a cure cannot and should not work any more than a perpetual motion machine or “cold fusion” to create endless pollution free fuel!
Getting back to the Nikkei… the attempt at reflation is, to my way of thinking, likely to lead to a lasting breakdown once more sooner rather than later. What can be seen from the daily chart is that there was a failure at the top of a rising trend channel from September last year and which will very shortly lead to an imminent break of the 50 day moving average at 13,651, especially given that the RSI (now at 43) is below neutral 50. Indeed, given the way that the oscillator is one of the few true leading indicators in the technical analyst’s armoury it should be regarded with respect by the bears in this instance. Even if you are not a fan of the RSI, is that as little as an end of day close below the 50 day line could drag this market towards former March resistance at 12,600 and also site of the floor of an April gap. The index is likely to have a sharp rally from that point.
Perhaps it can be said though, that the key to the longer term charting prospects for this market, does well and truly rest with the weekly chart. This is because we can see here just why, technincally speaking, that there has been a setback here over the past couple of weeks. The explanation lies around the former 14,601 intraday peak in 2008 and the initial gap higher through this level recently with a key weekly key reversal down last week and which also filled the gap floor at 14,636. I wish I had been watching this market more closely of late, as it has to be admitted that a more clear and powerful bear set up would be difficult to find.
There is however an April golden cross buy signal of the 50 week and 200 week moving averages, but again, we could looking for a re-test of the grey 20 week moving average now at 12,600 over the near term and which neatly coincides with my observations above. But, ever as a cynic, I would have to say that for me the earliest trigger to go long of the Nikkei would be an end of day close back above the old 14,601 resistance from 5 years ago. Until then I am adopting a neutral stance.