Custom Search

Saturday, November 28, 2009

Nikkei/Dow revisited

A while back I took a look at the Nikkei's count and how it relates to the DOW.

The chart below is an updated chart taken from the approach that the Nikkei has just about finished its "third of a third" wave down. I suspect this because its RSI is oversold and heading to its extreme. I have found that RSI lows typically occur at the price low of a subwave [iii] of wave 3. In this manner it begins to start to form a double positive divergence. The first divergence occurs on wave 3 low and the second on wave 5 low. This double divergence signals a wave (2) rally is coming.
The next chart below supposes that the Nikkei is actually tracing a leading expanding diagonal for its Wave (1) down and that it is nearly finished and will rally on a wave (2) shortly. Instead of approaching the recent gap down as a "third of a third" in the chart above, I approached it as an exhaustion-type gap. The big concern in this pattern is that wave 2 appears to be a flat where it should be a zigzag.
The DOW weekly below does not show any particular glaring "in-your-face" weakness. Doesn't mean the high isn't in though as the 1930 rally didn't show particular weakness either. A 50% plus rally in both price and time is a very satisfying accomplishment and has been met. Also a big shooting star for this past week suggests that at least for this week, the DOW will not be making a new high. That encourages one to short any rise come Monday. The DOW is also not yet on the verge of breaking any technical lines. The RSI line and ROC line (not shown) and the rising trendline from March still have a bit of room left to absorb a further DOW correction. But a big down day will take it to the lines

The other aspect is that there is no RSI divergence on this chart to speak of. Also money flow (not shown) seems pretty good still.
So taken altogether, one could make a case, even if the DOW corrects further (likely) the Nikkei - DOW relationship and the strength of the DOW suggests it may, weeks down the road, rally to yet another recovery high at the point the Nikkei rallies in its wave (2). That would be like the 2007 rally in which it reversed a summer correction that appeared to be the beginning of P1.

Of course this doesn't have to be either but the whole relationship is interesting and the fact that the Nikkei is bottoming in its daily RSI and the DOW is coming of a big peak is something that cannot be ignored. The big difference at this point of time versus 2000/2003 and probably even in 2007 is that the currencies of each nation appear to be playing a much bigger role in things in both the DOW and Nikkei.
blog comments powered by Disqus