Touch and Go with the Nikkei

• Posted by Greg Harmon
• on February 2nd, 2016

My daughter plays basketball. Like most kids her age she bounces around the house all morning before it is time to go Saturday morning. Jumping up and down, pivoting, and spinning, she is about as loose as can be. But for some reason when shes gets to basketball her coach has the kids do warm up drills before they touch a basketball. Jumping jacks, leg raises and touch and go’s. The touch and go’s are where the kids run from the end line to another line and touch it then return. They do a lot of this.

I’ve noticed recently that the Japanese Nikkei has also been doing a lot of touch and go’s. In fact for 20 years it has been doing touch and go’s against a falling trend line resistance, as shown in the chart below. Since 1996 every time the Nikkei touched the falling line it fell back. Sometimes further than others, but each time, in 2000, 2007 and 2013 it pulled back. That changed in 2014 when it broke through to the upside. Like a kid running past the end line and out of the gym.

Since then it moved higher for several months but then started a pullback. Last month the Nikkei had a another touch and go, hitting that same extended line, now acting as support and then rebounding back higher. In technical analysis we call this a retest. And when this happens and is confirmed, by a follow up the next period with a reversal back higher, it is a very bullish signal. Keep your eyes on the Nikkei the rest of the month. A close at the end of February over 17518.30, where it closed January, could mean big things for the Japanese market.

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