Word is out tonight the Nikkei gapped down to start the week. The Nikkei happens to be wrestling with an important trend/attractor line dating back to 1996 and while it is breached they might keep it on either side of the line for weeks or several months to come. What that does to the yen contract should also be interesting. In fact we are watching a very important inflection zone on the yen.
Look at the secondary bottom of the last major rally in the yen contract. Do you remember when that was? Yes, it was September 2008. You remember the financial conditions or you probably would rather forget it. This is an area where on an ordinary chart traders attempt to buy because it’s a big support zone. The Nikkei on the other hand is hitting an important extreme on the other side and thus far has responded to resistance. It’s confusing because you have a pattern with a parabolic drop that is way overdue for a trading bounce yet the last time we were here, conditions were of historic extreme. Can traders buy it from the same place as the financial crisis? I think they’ll make the attempt but here’s another market that could go back and forth for an extended period of time. Obviously, this chart has huge implications for Japan and the USD-JPY.
Finally, we have gold, which has been consistently down for the past two years and coming off one of its worst years ever. Just like the SPX, we are not going to see such an extreme. We have a decent place for a bounce although I don’t think we are at the point for a long-term bottom. The symmetry and calculations support a nice trading bounce but not the bottom. Thus far they are off to a good start. For now, the XAU is off to a very good start on this leg but should run into some serious resistance starting on Monday. The real indication always comes on the move going the other way. If sellers fail to show up, this could be the setup for a C or third wave up. So the first big opportunity of the year comes in the precious metals, which are closest to a big move of any major chart I’m looking at.
The other key indication we’ll be watching this year is the 4289 level in the Nasdaq. As you know by now, it’s the secondary high off the bubble peak. That means it has been surpassed only one time in history. It’s the next major target for the Nasdaq, and I think it will be hard to take out. The Dow took 25 years to retake the 1929 high; we are only 14 years out. I seriously doubt we’ll see 5000 anytime soon.
Of course, we’ll be at the edge of our seats when it comes to watching the Congress v. Obama all year and in terms of geopolitics we’ll watch the action in Egypt, Israel and Iran with just as much excitement. It should be a real interesting year.