Another week has passed and there has been more drama on the Nikkei. The wild swings have continued, but the overwhelming move has been down. At one point the Nikkei had fallen 23% below its 15,942 intraday peak set on May 22nd. In so doing it also categorically took out the fledgling APR2013 support. This was disappointing as the initial indications were that this support line could be valid. However once it was clear it was not, it was time to move on.
|MIDAS Method Overview|
|Stock/Index/Currency/Commodity||Nikkei 225 (Japan)|
|Support Launch Month||NOV2012|
|Level of Support||1st|
|Price of Support||12,251|
To the casual observer the Nikkei’s plunge looks catastrophic. Not so to the MIDAS user.
Although APR2013 support did not hold, NOV2012 support did and the Nikkei’s fall halted just above this level. Below is the MIDAS chart showing data from Friday’s close. NOV2012 support was at 12,251.
The next chart shows the Nikkei’s daily movements over the last four months. On Thursday the index bottomed at 12,289, just above NOV2012 support (circled in red).
On Friday all markets were boosted by a better than expected NFP report in America and the Nikkei futures’ market closed at 13,332. Although NOV2012 support only marginally avoided being tested, the strong rally from just above this level is highly suggestive that the latest Japanese bull market is still intact.
Some MIDAS users may well have bought the Nikkei once it became clear that NOV2012 support had survived. However others may have chosen to wait for further confirmation that the Japanese stock market is still in a bull market.
For the latter group the MIDAS Method offers a simple (and often effective) technique to establish this. By placing a Launch Point on May 22nd (when the Nikkei peaked) this creates a new resistance line. The chart below shows exactly this resistance (MAY2013) and its current level (14,157).
If the Nikkei continues its rally into this week then MIDAS users will be watching the MAY2013 resistance level closely. If the index breaks through this, then the bull market is more likely to continue to make new highs. However if this resistance level holds then expect to see NOV2012 support retested.
When a support or resistance line fails this does not necessarily signal a reversal of trend.
At this stage it is important to look for other evidence to confirm whether the market is still primarily moving up or down.
Using the MIDAS Method, in bull markets seek confirmation at lower support and in bear markets seek confirmation at higher resistance.
If you believe a bull market has peaked, then consider adding a Launch Point at the top to create a new resistance line. If the market fails to break through this resistance line then the probability increases that the market has turned and a new bear market has started.
Equally, if you believe a bear market has bottomed, consider adding a Launch Point at the bottom to create a new support line. If the market validates this support line then the probability increases that a new bull market has begun.
The simplicity of the Technical Forecasting MIDAS Method tool makes conducting this sort of market analysis extremely quick and easy to do.