global stock markets outlook for 2016 part 3 melt up before potential correction 1791222015

Let’s us now sail across the Pacific Ocean to Asia. To access Part 1 and Part 2, click on these links here and here. Nikkei 225 […]

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By :  ,  Financial Analyst

Let’s us now sail across the Pacific Ocean to Asia. To access Part 1 and Part 2, click on these links here and here.

Nikkei 225

Nikkei 225_monthly_30 Dec 2015

Nikkei 225_weekly_30 Dec 2015

Nikkei (ex JPY) versus MSCI World_30 Dec 2015(Click to enlarge charts)

Key elements

  • From a mega long-term secular cycle perspective, the Japan stock market has finally managed to emerge from a decade long of “dark abyss” since the burst of its property bubble in 1990. The benchmark Nikkei 225 has staged a bullish breakout from a long-term “Double Bottom” accumulation configuration earlier this year in February 2015.  Prior to this breakout, it has also surpassed the former trendline resistance linking the lower highs since June 1996  now turns pull-back support (in dotted green) at 13900 (see monthly chart of Nikkei 225).
  • From a primary cycle perspective, the Nikkei 225 is still evolving within a bullish ascending channel in place since 15 October 2012 low with its lower boundary (support) now at around 16900 with confluences with a Fibonacci retracement cluster and the rising 89-week Moving Average (see weekly chart of Nikkei 225).
  • The upper boundary (resistance) of the aforementioned long-term ascending channel stands at 25050 which confluences with a Fibonacci projection cluster (see weekly chart of Nikkei 225).
  • The weekly (long-term) RSI oscillator has continued to inch higher from its support zone and still has further potential upside before reaching its extreme overbought level. This observation suggests that upside momentum remains intact for a potential push up to test the upper boundary of the ascending channel (see weekly chart of Nikkei 225).
  • Interestingly, the relative strength chart of Wisdom Tree Japan Hedge Equity Fund ETF (a proxy of Nikkei 225 without currency risk as it attempts to remove JPY weakness via hedging techniques) versus the MSCI All Country World ETF has continued to evolve within a bullish dynamic (in an ascending channel, 20/50-week Moving Averages and revival in upside momentum as seen in the MACD). These observations advocate a potential outperformance versus the rest of the world in the current phase of Nikkei 225’s expected multi-month upside movement in place since 29 September 2015 low.
  • Based on the Elliot Wave Principal and Fibonacci analysis, the Nikkei 225 is likely in the midst of undergoing the wave V’s upside movement to complete its primary bull cycle in place since March 2009 before a potential correction occurs (see weekly chart of Nikkei 225).

Key levels (6 to 12 months)

Intermediate resistance: 22750

Pivot (key resistance): 25050/26900

Support: 16900 & 13900

Strategic outlook (6 to 12 months) for Nikkei 225

Based on the above mentioned technical elements, the Nikkei 225 is likely to see an upside movement to target 22750 before the long-term pivotal resistance zone at 25050/26900.  Thereafter, a potential correction is likely to occur towards 16900 before 13900, the long-term pull-back support in place since June 1996 that has yet to be retested.

In the alternate scenario, a clear break (weekly close) above the upper limit of the pivotal resistance at 26900 may see the see the continuation of the primary bullish trend to 29610 next.

Source:  Charts are from eSignal


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