Update on Nikkei: Mar 23, 2017

The last time we focused on the Nikkei [see: The Nikkei, Yen and Oil: Joined at the Hip] it had bounced sharply following the US election. Given the fundamental headwinds Japan faced at the time, the bounce seemed fairly preposterous.

…the Nikkei 225…has soared 2,600 points in the face of: (1) the election of a protectionist US president, (2) higher oil prices, and (3) higher interest rates.

But, it had landed NKD at our upside target: the .618 Fibonacci level at 18631.

Ordinarily, we would expect a substantial pullback at a key Fib level like this — especially when the circumstances were a little sketchy. Instead, NKD settled a measly 500 points (2.7%) and was swept up, like practically everything else, in the year-end stampede to all-time highs. It spurted up to the .786 Fib at 19669 by mid-December.

If there had been more of a pullback at the .618 Fib, we might have expected the .786 Fib to matter (i.e. a Gartley Pattern.) But, with such a brief stay at the .618, it wasn’t at all clear. Coincident algo drivers such as oil had also topped out. Would NKD be affected?

Unfortunately for the bulls, the race to year-end new highs was exhaustive. NKD spent a full three months treading water and even breaking down — but, never by much. Finally, on Tuesday, it did — shedding 2% in a single day. But, it won’t surprise anyone to learn that this uber-manipulated index landed at strong support.