Almost Time to Buy Japan's Blue-Chip Nikkei 225 Index

Technical analysis shows that the selling should dry up this summer.
By Ken Goldberg ,

After a year of painful market action in Japan's blue-chip index, the Nikkei 225 is laying down the footprint of an overheated and oversold situation that should lead to many months of upward action. 

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This weekly bar chart shows the bounce of early this year as a yellow box of corrective pattern, which is usually followed by a new low. That is what is happening but after only a retest of the February low, rather than a new low.

Therefore, the light green oval within the green box can't be ruled out, yet, but the upside probability has just moved above the 50% level, causing our decision support engine to signal that selling actions are no longer indicated. This message was just flashed to members of our live-market Trading Room and DSE Alerts service

The blue arrows highlight the likely path of this index in the coming months to quarters, regardless of a quick spike into the green oval, which targets 14,400 +/-400. The objective investor must again consider this market a viable place to allocate risk capital, at least for the coming nine to 18 months, as these weekly stochastics have crossed up from oversold territory (red up through green lines), showing that surprises should benefit the bulls.

Not shown, the daily bar chart is confirming this new signal from the weekly degree of trend. Ideally, the green oval will be briefly visited, but it is no longer required. 

The DSE doesn't include fundamental data into its algorithms, so Bank of Japan impotence, Abenomics or any other story of what might happen is used to anticipate the price behavior of the index. Only the price behavior itself is used to seek prior patterns of cause and effect, before probability ranked outcomes are prioritized. 

Although we can't imagine what the news will be, the message of the DSE's analytics and forecast is that something that appears to change the world's view of the Japanese economy is about to come to our collective consciousness, and as a herd we are about to start disliking Japanese stocks less than in the past year.

Therefore, the DSE warns that short sellers take care to use protection by buying stops to avoid the potential bounce into the 17,500 +/-300 zone. Additionally, the DSE strongly suggests using any dip into the green oval as an opportunity to establish long exposure in the Nikkei, which should be handsomely rewarded in the coming year or two. 

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These are the kinds of analyses that will be the focus of our July workshop in Los Angeles, where there are still a few seats available. To reserve a spot, contact information is available at that link.

This article is commentary by an independent contributor. 

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