The Nikkei is at a critical pivot point regarding both its short- and long-term trend. The first chart we post today shows how the Nikkei has broken the long-term, upward sloping, red trend line and is now back testing it in an effort to break above it. Just below 14000, the Nikkei has staged an upward move towards 15400. The 61.8% retracement level is the price level at which the Nikkei made a top and reversed back down. The upward sloping channel contained the upward move from 13870 to 15400. The rise was overlapping and with no clear impulsive pattern. On the other hand, the decline from 16260 to 13870 was impulsive and so is the decline from 15400.
The Nikkei is now in a bearish trend as it is forming lower lows in the short-term. If 14000 and 13870 is taken out, we will have the same bearish pattern on the daily chart thus confirming that teh longer-term trend is down as well. If this important low is broken, we should expect the Nikkei to extend its decline at least towards 13000 where the decline from 15400 is equal to the decline from 16260 to 13870.
From the Elliott wave perspective, we expect over the coming month that the Nikkei will break below 14000 and head towards 13000. The form of the decline from 15400 is impulsive, while the upward bounce had characteristics of a corrective bounce. Selling pressures should come back shortly. So we are bearish. We believe that weakness in this index will also adversely affect US and European equity markets.
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