Technicals

Japanese Equities May Soon See a Break but it May not be to Record Highs

The Japanese benchmark is working its way deeper into a congestion pattern. A series of lower swing highs for the Nikkei 225 over the past two months has developed a convincing wedge formation with the more-established rising trend from April. Realistically, this congestion pattern has more than 500 points of room to maneuver so a trend-defining breakout is not necessarily imminent. However, there is the potential for a short-term break with the pivot and Fib confluence set at the psychologically-significant 10,000 level. A bullish break here is the more likely outcome; but should this level hold, we could quickly progress a deeper retracement of the dominant bear trend.

The S&P/ASX 200 is on a tear. The three-session rally that began with last Friday is the most aggressive bull wave we have seen since the inception of the solid mid-July to October advance. At the same time, the rally may simply be a correction of the late November plunge that still has traders wondering whether Australian equities are developing a medium-term top. In the meantime, we have notable resistance with the pivot (going back to September) and short-term 61.8 percent Fib of the recent bear correction at 4,750. If this level holds, it could develop a head-and-shoulders formation.

The Hang Seng Index is just off the 15-month highs set back on October 23rd. The trend is still clearly in favor of a test and perhaps breech of this moderate technical level (the 61.8 percent retracement of the December 2007 high to October 2008 low comes in around 22,595). The long-term bias is still well defined by a series of higher swing lows. The only stopping force for Hong Kong equities at this point is momentum. The average true range (ATR) shows the market is the most volatile it has been since mid-August; before the period of congestion and the notable pull back.

Written by: John Kicklighter and Jamie Saettele, Strategists for CFDTrading.com
Questions? Comments? You can email them to John at jkicklighter@cfdtrading.com.