1st June 2013 – The Nikkei continues to teach

The Nikkei continues to provide an excellent live case study in some of the most important lessons for successfully using the MIDAS Method.  Along the way it has also set up some highly profitable trading opportunities, demonstrating how prices can often behave when at key points of MIDAS support or resistance.

Writing today the most important issue is whether or not the APR2013 support line is valid.  After yesterday’s end of day sell-off in America, which dragged most major indices around the world with it, the Nikkei finished about 4% below 14,025 (APR2013 support’s latest reading).  The further the Nikkei falls from here the less likely it is that APR2013 will be confirmed.  Even so it is too early yet to make a definitive decision.

If the Nikkei resumes its march higher, then this could be a fantastic opportunity in the making. If it falls, then the obvious thing to do is to look where it might next find its footing.  Either outcome is acceptable to the MIDAS user.

 

MIDAS Method Overview
Stock/Index/Currency/Commodity Nikkei 225
Support Launch Month APR2013
Level of Support 2nd
Price of Support 14,025

 

Before anticipating what next week might bring here is a quick reminder of what has happened.  APR2013 support’s Launch Point is set at April 4th 2013.  This is a slightly unconventional Launch Point as it occurs significantly above the previous support line.  Usually Launch Points are set just below support or just above resistance, depending on whether the market is going up or down.

Nikkei 225 MIDAS 1_6_13

 

However in the case of the Nikkei, April 4th should prove to be a seminal date, which fundamentally changed the nature of the Japanese stock market.  This day marked the beginning of the Bank of Japan’s (BoJ) aggressive Quantitative Easing Campaign.  If the BoJ follows through on its commitment to purchase ¥7trillion of financial instruments per month for the next two years, this is more than likely to stimulate a fierce bull market in Japanese equities.  That is if recent history is anything to by.

Initially the market reacted exactly in anticipation of this, with the Nikkei climbing 30% in the space of a few weeks.  Such a parabolic move can often be followed by a sudden steep decline.  The Nikkei has been no exception and the last week has seen it shed 2,500 points from the peak.

Encouragingly for MIDAS users the initial precipitous drop stopped almost exactly at APR2013 support.  Now this may seem lucky, but regular users will be aware of similar precedents in other indices and stocks around the world.  Key levels of MIDAS support can often prove to be a turning point for a market.  What has followed, perhaps predictably, has been a period of wild swings in the index.

*****MIDAS Lesson*****

Remember even in a falling market, MIDAS levels of support can continue to rise.  Check the latest price for support after the market has closed and the end of day data has been released and processed.

If a MIDAS level of support or resistance looks like it might fail, then start plotting new levels of support, using the guidance for placement of Launch Points.

 

Using the MIDAS method as the primary guide combined with other technical analysis techniques has yielded some great results and there has been another good trading opportunity this week.

Nikkei 30 Minute 31_5_13

Once again, on Thursday morning, a <30 reading on 30-minute RSI indicator proved to be a decent buying opportunity at about 1000GMT.  This article was released at about 1130GMT and the Nikkei jumped 350 points, allowing a quick move of stops to lock in a profit if the market turned again.

Unfortunately it did turn again and by yesterday morning the index had made a new weekly low.  It recovered slightly in the day, only to sell off again towards the close of the week.

This latest drop posed a quandary for APR2013 support.  The initial halt, 10 days ago, at and subsequent rises and falls through support, suggested this was indeed an important level for the Nikkei.  The latest selling, however, cannot be ignored and the further the Nikkei drops from support the less likely it is valid.

Equally though this could be the beginning of a period of consolidation at this level.  It is probably too early to discount APR2013, though each MIDAS user needs to make their own informed decision.  With the market now closed for the weekend this is an excellent place to take stock.  As exhilarating as the last week has been it is important to make measured decisions going forward.

I will continue to watch the Nikkei extremely closely next week, but for what it is worth my overarching feeling is that selling now basically means going against the Bank of Japan.  This just doesn’t feel like a sensible move.  If the market does move lower, I will keep on the lookout for a good buying opportunity, using MIDAS levels of support to guide me.