A New Bull Market Beginning?
TQ
Last year we noted that the Nikkei was basing with an Inverse H&S bottom possible and so on. The following is from one of my early July 2003 posts.
"Since the beginning of May we can see 6 unfilled gaps in the rise. Is the one at the beginning of July an exhaustion gap? The doji today also gapped up. If it gaps down tomorrow the candlestick crowd would see it as a negative. Let's look a little closer.
"Yesterday's long white candlestick may be due to the golden crossover of the 50 day moving average above the 200 day moving average.
Nikkei daily chart from late 2002 to mid September 2003:
" The inverse Head and Shoulders bottom of March April and May has a vertical measure of almost 800, and a breakout from the neckline occurred at somewhat above 8300. Thus the price objective was a minimum of about 9100 to 9200. This was achieved in mid June.
"Early December saw a left shoulder neckline (9320) of a larger inverse H&S formation. The early July break above 9200 moved the Index above the neckline of this larger H&S formation. The vertical rise from the low of 7603.8 to the neckline of slightly over 9200 gives a measure of about 1600.
"While the Nikkei could fall back to test the neckline, the price objective if this formation is fulfilled, would see the Index move to about 10800 (9200 + 1600 = 10800.)
Nikkei from 1993:
"On the long-term chart, this may simply be a bear market rally. The old support line from 1990 through the low of 1998 also acted as resistance in the rise of 2002. We're not out of the woods yet."
Nikkei from 1987:
Back to the present: All that was written in early July 2003.
The early July 2003 gap was an exhaustion gap, and two days later we see that it formed part of an Island Reversal (intermediate) Top. We also note that our projection of a price objective of about 10,800 out of the new Inverse Head and Shoulders bottom was fulfilled.
The old support was resistance, and has now been surpassed. It is support again. It was tested in late 2003. There in second half 2003 we can see an Inverse Head and Shoulders (also known as a Cup and Handle) in which the right shoulder low was the test of the long-term support line. We have now started a rise and have surpassed resistance posed by the 200 week moving average.
There is a view that some of the money from the Japanese treasury found its way into one or more stock markets. This is interesting in light of what has happened in the Nikkei over the past year.
In addition we are now in a classic Cup and Handle: the cup being from early 2002 to late 2003.
The Handle is formed from the consolidation that occurred September 2003 to March 2004 (which has formed another H&S bottom, and last Friday's hammer may the 'kiss and run,' a the return to and test of the neckline, then up more from there.) We are currently at the neckline from the May 2002 top of 10,883 to the October 2003 top of 11,238.
The vertical measure of this cup and handle, from the low of 7603 to the neckline of about 11,566 is about 3963. Add this to the current point of touching the neckline, about 11,000 and we have a price objective of about 15,000 for the Nikkei.
This pattern is also visible in the monthly chart. If we get to the 15,000 we could form another cup and handle to move the Nikkei up even further. As we can see from this chart there is no reason why the CCI and Williams%R cannot remain in the overbought range for years, as they did for most of the 1980s.
Please note that in the shorter term the 50-month moving average may provide resistance as it has in the past.
Nikkei 25 year chart:
In review, we can see that IF the current cup and handle fulfill, we would see the NIKKEI at about 15,000. This would make a 'Threepeat,' having formed a cup and handle by last July, a second by the present (with the first as the launch) and achieving 15,000 would be the third.
Even more interesting, another cup and handle would have formed, with a higher
price objective, a target of about 22,000. And a fourth could then form several years from now, to project a price objective of about 33,000. And so on.
The monthly chart above shows the left side of all the above formations. The right side, if it develops as suggested, might give us a kind of symmetry as seen in the end of the bear market in gold chart, below.
Gold 25-year chart:
This interpretation of the charts leads me to wonder if all this points to a ten or more year bull market in Japanese equities being possible, and quite possibly those tied to them.
What would this mean for precious metals? If the recent past is prologue then we can expect that for some years to come the bull view will be strong, yet toned with bearish attitudes developed from the long Nikkei bear market, as well as other factors such as the collapse of major equities markets during 2000 to 2003. And as money is made in general equities, a lot of investors would move into physical and precious metals stocks, as we have seen happening for the past year. That is, precious metals stocks would rise in tandem with general equities.
So in this scenario precious metals would rise for years as the wealth management experts begin to advise their wealthy clients to sell Nikkei rallies and move cautiously into precious metals and precious metals equities for safety.
HUI ten-year chart:
A look at the Dow Industrials:
Please note that in a few weeks, even with the right shoulder correction that I suggest can happen, the 50-week moving average will likely make a 'Golden Cross' up over the 200 week moving average in the Dow Industrials.
When this happened in the DAILY Dow Industrials in late spring 2003 we saw the completion of a yearlong Inverse Head and Shoulders bottom, and its fulfillment.
When this happened last year in the DAILY Tokyo Nikkei in early summer 2003 we saw a large rise in this index in the months that followed.
See Tokyo daily chart below:
Dow Industrial four-year daily chart:
In this scenario we could see the Industrials near the 200-week moving average, currently just above 9700. It could then complete the formation of the right shoulder of an Inverse Head and Shoulders bottom, from the 2001 high of about 11350 to the recent high. If we see a correction end there, and a good rise past the neckline with good volume, then the recent bullishness would have been justified, as the price objective of this three year Inverse Head and Shoulders bottom/ Cup and Handle would be roughly 14,000.
Dow Industrial ten-year weekly chart:
The fulfillment of this scenario would boost the bull position, and give the Dow and North American stocks in general, including the precious metals, a bullish outlook, as it did in the Nikkei last year.
Cheers, TQ
Disclaimer: Nothing written by TQ is intended to be used in any way shape or form as any kind of investment advice. The views and interpretations herein are simply academic/educational discussions of data, intended to be nothing more. Students of TA are requested to draw their own trend lines, necklines etc. Anyone seeking to make investment decisions would be wise to consult trusted financial professionals.
Copyright by TQ, 2004
22 March 2004
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