Key Overhead Resistance Noted on Monthly Nikkei

Feb 2, 2010: 11:56 AM CST

For those of us who follow overseas markets, I wanted to share a quick reference to the overhead resistance levels and structure as seen on the Monthly Japanese/Tokyo Nikkei Index.

Let’s take a look (monthly):

Starting with the October 2007 peak (a few months prior to the October SP500 peak) and ending with the October 2008 and March 2009 lows, we see the following Fibonacci Retracement grid, which marks the 38.2% resistance level at the 11,270 level.

Price recently inflected downward in January off the 11,000 level and closed under the 20 month EMA, currently situated at 10,560.

Both of these are bearish omens which could indicate that the 11,000 level is formidable resistance beyond which buyers might be unable to push price.

If we do get an inflection down that begins here, it would confirm the bias that we are observing a 5-wave fractal move down in the Nikkei, and that the rally from the 2009 lows – perhaps similar to that of the S&P 500 – was a primary 4th wave into resistance.  We’ll need to keep a close watch in the months ahead to see if this does play out in bearish fashion.

On a separate note, a slight negative 3/10 Oscillator divergence formed into this resistance level and new recovery high in January, serving as a non-confirmation.

In summary, watch the following monthly levels for clues:

11,270 (38.2% Monthly Fibonacci Retracement)
10,600 (20 month EMA)
11,000 (“Round Number” Resistance)

A sudden bullish break (alternate scenario) beyond these levels would argue for a continuation move to test the next level of resistance at the 12,600 level (50% Fibonacci along with a prior price support zone which often becomes resistance).

Corey Rosenbloom, CMT
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