Nikkei And Hang Seng Signal Trend Reversals

Index Strat Risk Target NKY Short 9,150 7,750 ASX Flat HSI Flat

Nikkei 225

Short-Term Technical Outlook


As we expected, the Nikkei 225 has broken from its tight wedge/congestion formation; and the bearish bias has won out. Tuesday’s plunge took out the past week’s lows around 8,650 to provide the final step to a confirmed trend reversal (topping, congestion and then turn). This daily candle is very bearish with its large upper wick and closing near its lows for the session. However, a bear wave will take days and weeks to play out. This initial momentum may very well stall quickly if the fundamental fuel and the momentum from other equity indexes isn’t there. The first line of targets will be to close gaps (the nearest is between 8,350 and 8,450) as well as the Fib retracement from the March to April rally. Stops are easily set above the falling trend component of the wedge formation of the past two weeks (or above the April swing high for those that are conservative).

Long-term Technical Outlook


The correction from 7028 has reached the upper end of the former 4th wave triangle. An Elliott guideline is that corrections tend to end near the extreme of the fourth wave of one less degree. With the index trading at the upper range of the recent range, I favor the bearish side near term, even if just for a few weeks.

S&P/ASX 200

Short-Term Technical Outlook


While other Asian markets have already put in for their initial breakouts, the Australian benchmark has held back from taking direction. Another volatile session produced a wide range candle with large wicks. At the same time, neither the shoulder line nor the neckline on the potential head-and-shoulders formation was seriously tested. The market will no doubt take its first steps towards a break soon (we will need to see follow through for confirmation on trend development). Pushing below the rising trend may not be enough; so we will look for a move below 3,660. On the other side of the market, a push above the 3,775 shoulder line will need to mark a confirmed push above 3,800 to mark progress.

Long-term Technical Outlook


The S&P/ASX is in a similar position. The rally from the low has reached the 4th wave extreme. As such, it is possible that the entire advance from the low is complete. It is also possible that the rally from 3073 is just the initial leg of a larger correction. Either way, a setback is likely over the next several weeks in either the resumption of the long term bear or wave B of a correction.

Hang Seng

Short-Term Technical Outlook

Trends and reversals are difficult to call in the Hang Seng Index owing to the market’s extreme volatility. However, considering the consistency of the rising channel from March and the clean move from this past week’s congestion; there is a greater probability that this is confirmed breakout and reversal. Aggressive stops can be maintained above the range of highs around 15,400 with a conservative cut out above 16,000. There is a myriad of targets below and Fibs, minor pivots, gaps and other levels potentially stepping in as support at some point. Momentum is the more important component at this point. We will get aggressive and immediate follow through? Is this move going to quickly grow winded and require stop and start declines? Time will tell.

Long-term Technical Outlook

The Hang Seng is in the exact same position as the S&P/ASX. The rally from the low has reached the 4th wave extreme. As such, it is possible that the entire advance from the low is complete. It is also possible that the rally from 11344 is just the initial leg of a larger correction. Either way, a setback is likely over the next several weeks in either the resumption of the long term bear or wave B of a correction.

Written by: John Kicklighter and Jamie Saettele, Strategists for CFDTrading.com
Questions? Comments? You can email them to John at <[email protected]>.