Originally published by Guppytraders
Japanese Prime Minister Abe famously launched his five arrows some time ago. They seemed to achieve nothing, apparently fluttering to earth, and the media lost interest. The performance of the Nikkei suggests that at least some of the arrows reached their targets.
Although there is a focus on the 21,000 level it the 20,800 level that is much more important technically. The move above this level breaks a long term multiyear triple top pattern. This level acted a support level in 1990. The level acted as a resistance level in 1994, 1997, 2000 and again in 2015. This is a very powerful resistance level and this makes the breakout particularly significant because it signals a substantial change in economic outlook.
The Nikkei did move above this level for a few week in 1996 to peak near 22,000. A current move above 22,00 will act as further confirmation of the strength of this breakout and its significance.
Between 1987 and 1991 the Nikkei created a very large head and shoulder pattern. What is important today about this pattern is the equal highs made by each of the shoulders. This creates an historical resistance level near 26,500. This is the next longer term resistance target for the current Nikkei breakout.
The very same people who have been consistently frightened by the continued rise of the Dow Jones Industrial Average, the S&P 500 and the Nasdaq 100 over the past 18 months are now also frightened by the rise in the Nikkei. Rather than see any pullback as a buying opportunity, they see the pullback as a warning the market will collapse.
Guppy Multiple Moving Average (GMMA) indicator analysis confirms the strength of the trend. The long term group of averages is well separated. This shows investors are very confident about the strength and continuity of the trend. There is short term trading activity. This is shown by the short term group of averages. The compression and expansion activity shows traders taking short term profits. They are not quite as confident as investors.
The key feature is the way the pullback in April and September used the lower edge of the long term GMMA as a support level for the subsequent rebound rally.
This behaviour suggests that any pullback is a buying opportunity.
The index is clustering near the upper edge of the short term GMMA. This is very bullish so traders will watch for consolidation to develop. Typically this has been a sideways movement, followed by a retreat and rapid rebound. Any move towards 21000 will represent a buying opportunity as the rebound develops.
Daryl Guppy is a leading international financial technical analysis expert and special consultant to Axicorp. Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.