The Asian trade is back. The major Asian indices have been put on hold until now, as traders watched the Shanghai market rally over 50% in the first half of the year. Traders accurately predicted that the Chinese index would correct sharply and consolidate the runaway profits piling up in that market.

The trepidation over the Shanghai index served to keep the bulls at bay in the Hang Seng and Nikkei indices, which stalled over the last 18 months and have only now moved out to new highs. Many traders were looking for a crash in the Shanghai market and either shorted the surrounding Asian exchanges anticipating a toxic spillover or simply stayed away and waited for the fallout.

The Shanghai exchange did produce a 20% correction, but the move lower quickly ended and the exchange is back to its prior highs. Now that we have seen the correction come and go in China, any bearish cloud hanging over the other Asian markets has vanished. We believe this has left the Hang Seng and the Nikkei compressed and positioned to resume the primary uptrend.

Nikkei 225 Index

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The Nikkei 225 broke sharply last year and corrected along with the

S&P 500

. The Nikkei has recovered off of those lows and has since broken out over resistance. The index was consolidating at the overhead resistance line at 17500. The recovery in China and the breakout by the Hang Seng have pushed the Nikkei out to new highs and shows that the bulls are back in control of the Japanese market.

The Nikkei has lagged the other Asian markets following the breakout, but we would look for the Nikkei to catch up and continue the move to the upside. The breakout here suggests the Nikkei is ready to resume the primary uptrend and the prior consolidation zone should now act as support.

iShares MSCI Japan ETF

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Traders can get exposure to the Nikkei by buying the

iShares MSCI Japan Index ETF

(EWJ) - Get Report

. This ETF mirrors the Nikkei index, but it has underperformed the Nikkei recently on a comparative relative strength basis. The relative weakness in the EWJ may be an opportunity to get long the fund and anticipate a "catch-up" move that puts it back in line with the performance of the Nikkei.

The next move higher in the Nikkei may have some legs, and traders should look for a meaningful rally over the intermediate-term time frame. Considering the strength of the Nikkei, traders should buy EWJ here and not wait for a breakout over resistance at $15. A move below $14 would break the uptrend line and suggest a change in the bullish nature of the chart.

At the time of publication, John Hughes and Scott Maragioglio had no positions in the stocks mentioned. Hughes and Maragioglio co-founded Epiphany Equity Research, which has developed and utilizes proprietary tools to identify and track liquidity changes in the market indices and sectors. Hughes advises numerous asset managers, hedge funds and institutions managing in excess of $30 billion. Maragioglio is a member of the market technicians association (MTA) as well as The American Association of Professional Technical Analysts (AAPTA) and holds a Chartered Market Technician (CMT) designation. Maragioglio has also served on the board of directors of the AAPTA.