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Long-Term Look at the Nikkei

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The Tokyo Nikkei Average has been in another free-fall since the top in May, falling -22%. Before we get to the long-term chart, let's look at the one-year daily bar chart.

The average rose +82% in just six months in a parabolic move that was doomed from the start. They almost always are. When a parabolic move breaks, as it did in May, the speed of the decline can be catastrophic. The downside expectation is for prices to return to the level of the basing pattern that preceded it. In this case between 8300 to 9100. That is not a prediction, just the level we at which we might expect to start looking for a tradable bottom.

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As dramatic as the the above chart is, it is hard to beat the long-term chart below for drama, when we look at the parabolic rise from 1970 to the all-time high in 1989. Over the last decade prices seem to have found a base at around 7000, instead of 5000, where the pre-parabolic base was. For this we can thank the super-human efforts of the government to avoid the inevitable by printing money. After over 20 years of avoidance, their economy has still not recovered, and recovery is nowhere in sight.

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Conclusion: Long-term charts put things into perspective, and the recent, exciting six-month rally is shown to be a mere blip in a long, grinding trading range. Also, the possible downside is at least 7000, or maybe 5000.

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Carl Swenlin
About the author: is a veteran technical analyst who has been actively engaged in market analysis since 1981. A pioneer in the creation of online technical resources, he was president and founder of DecisionPoint.com, one of the premier market timing and technical analysis websites on the web. DecisionPoint specializes in stock market indicators and charting. Since DecisionPoint merged with StockCharts.com in 2013, Carl has served a consulting technical analyst and blog contributor. Learn More
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