Thursday, May 23, 2013

The Nikkei 225 Cratered Overnight

As I write this the Nikkei 225 index is down about 8%, as per overnight futures.


You can see in the hourly chart above that after rising about 1500 points in just the last two weeks, the index lifted off yesterday in what looked to be a parabolic surge higher. But as often happens, an extreme and abrupt continuation move like that runs out of incremental buyers (demand) and the ascent stalls and even cracks. The chart above shows such a crack, also showing the very-common anemic run at a new high that follows but fails, making a lower high. And then poof -- look out below. With the Nikkei currently residing at 14,665, all gains achieved since May 10th have been wiped out.

The daily chart of the Nikkei offers more perspective.


It's textbook stuff, the breakout in November followed by a brief pause, then a steady climb to new heights. The index kicked into another gear in April and soared towards the 16,000 level, getting a bit parabolic as it created a sizable gap from the rising trend line. All in all, and as I've been expecting with the U.S. market, such a correction is not surprising.

I would say at this point the next level of support for the Nikkei is the 1350-1400 area, which is where price based before lifting off earlier this month and is also where the trend line currently resides. It's too early to definitively state whether or not this is the "final" parabolic blow-off top. And I would also add that given the country's fairly recent initiation of Abenomics, added volatility and extreme moves in the index could become the norm for the foreseeable future.

1 comment:

  1. Today's market action is eerily reminiscent of that in 1987 which led to a 20+% drop in one day and 33% decline over seven weeks as the chart below depicts.