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Sunday, November 29, 2009

If I had a NIKKel for ....

Wow binv, those are some really bad puns you are coming up with.

I showed my long term NIKKEI count back in September (Long Term Count of NIKKEI), and last week I showed a chart update on several Asian indices (Another Look at a Few Asian Markets).

I want to continue this train of thought with the NIKKEI. Here, first is the long term chart for reference, with the accompanying notes from my last Asian post:

Next is the old NIKKEI. Ouch. The long term chart tells the story of this Blue Supergiant, which burned so hot and so bright for decades, and is continuing to implode after fusing all that hydrogen into helium.

It has been leading down recently. And I think a lot of this has to do with the "carry trade" baton being handed from the Yen to the Dollar. So a fair question is, what happens to US markets when the carry trade gets handed off to somebody else? (Treasury Bond rates are a balloon being held underwater, but I certainly don't argue that rising rates will make the Dollar healthier. Far from it. Just more expensive. Riddle: Is a more expensive worthless dollar still worthless?")

So lets zoom into the daily chart. Just as the indicators were signaling a bottom back in 2008/early 2009, they look to me like they have been signaling a top as well. The NIKKEI has not made a higher high since August.

The long term count above shows a 5-wave move down with the NIKKEI starting its 5th wave. Since August the move does does not look like, nor does it count like a clean impulse. But you can see on the notes below, it does look and count like a leading diagonal feeding into a larger leading diagonal.

Columbia has been doing some *excellent* work in comparing leading / lagging major indices and has been using the NIKKEI has a leading indicator. This is well worth checking out: Follow the Leader?

The big question is, how does it handle the large support area it finds itself on right now? I don't have an answer to that question. But I see 2 main possibilities

1) It ignores it and breaks down definitively. This means the second leading diagonal doesn't really exist. However, if you look at the indicators, they are already oversold. So a breakdown here will get a bit of a run, but I doubt it will be a "crash"

2) It respects the support and bounces up. However this would be a classic technical bounce to burn off oversold. The bearish implications in this scenario are much more severe. The indicators have already shown significant bearish divergence earlier this year and I am showing below a potential Head and Shoulders setup of massive proportions. This would be a very big deal

So either way, other than for *very short term trades* the NIKKEI chart looks very bearish to me.

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