It is all the rage to short the Japanese market this week. And with the Nikkei at record levels and momentum extremely overbought who can blame those who seek to blow up their accounts on a daily basis. Be quick my friends and have a plan for when it reverses on you. There is a time and place for short selling. But for anyone other than a day trader that time and place is not the Japanese Nikkei.
Why? The Nikkei broke above a downtrending resistance in 2014 that had been in place since the all-time high. The break out continued in to 2015 when it topped at a new 20 year high. But then it fell back. Falling through 2015 and into the beginning of 2016. The fall stopped at that prior resistance, and it now acted as support. It languished there through much of 2016 and started higher late in the year. It paused at year end and then resumed the path higher in 2017.
This month the Nikkei pushed above that 2015 high. This is a sign of strength, not weakness. How far can it go? A Measured Move gives a target to about 28,000. But it is starting to get overbought, right, that has to stall it? The last time the monthly chart pushed into overbought territory the Nikkei rose from 16,000 to 21,000 before it stopped. You might be able to make a few yen shorting the Nikkei today. But it is Spring time for Japanese equities longer term.
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