NEW YORK (TheStreet) -- Economic events in Japan and China, plus lower oil prices caused the Santa Claus rally to stall this week, but with all weekly charts still overbought cycle highs can not yet be confirmed.
Most investors don't realize is that the Nikkei 225 traded as high as 18030 on Monday then reversed as Japan's third quarter economic growth shrunk 0.5%. This followed a contraction of 1.7% in their second quarter defining a technical recession.
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Then on Tuesday, China's Shanghai Composite plunged 5.4% on weak China trade and Japan's recession.
These two events coupled with declining crude oil prices are signals that global quantitative easing measures are not working. Next Wednesday is the last FOMC meeting for 2014 and most economists expect that the Fed Statement will no longer include the term "considerable time" and thus investors will conclude that the first rate hike will occur by June 2015.
While these storm clouds are on the horizon the weekly chart profiles for the major equity averages remain positive but overbought unless Friday's closes are below key moving averages at 17514 Dow Industrials, 2029.4 S&P 500, 4652 Nasdaq, 8892 Dow Transports and 1159.50 Russell 2000. Closes on Friday below any of these key moving averages will shift those weekly charts to neutral.
The Nikkei 225 (17371) is above its key weekly moving average at 16152 with its Dec. 8 multiyear intraday high at 18030. When this year ends it will be the 25th anniversary of the bubble peak at 38957.14 set on Dec. 29, 1989. The post-bubble low was 6995.90 set in Oct. 2008 so from the top to bottom the decline was 82%.
The weekly chart for the Nikkei 225 is positive but overbought with the index between its 23.6% Fibonacci retracement at 14529 and its 38.2% retracement at 19,195.
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