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Noose Tightens On Nikkei

12/09/04 07:58:26 AM
by Arthur Hill

The Nikkei Composite has been consolidating over the last 10 months, and the next break should produce a significant move.

Security:   $NIKK
Position:   Hold

For the Nikkei, the price pattern over the last 10 months shows a symmetrical triangle. These are neutral patterns that show a tightening range as time progresses. The lows are getting higher and the highs are getting lower, as neither bulls nor bears can seize control. Since August, the consolidation has flattened, with key support at 10545 and key resistance at 11410. A break up or down would signal an exit from triangle and the start of the next move.

Bollinger Bands confirm that a breakout could be near. Bollinger Bands are based on volatility, and the bands narrow as volatility decreases. The assumption is that periods of low volatility are followed by periods of higher volatility. The top chart shows the Bollinger Band differential as a percentage of the 20-day simple moving average (SMA), which is the middle band. Note that it has dipped below 5%, and this low reading shows relatively low volatility.

Figure 1: Nikkei Composite. The Nikkei has been consolidating over the last 10 months, and the next break should produce a significant move.
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
For a target, we can measure the length of the pattern (about 1840) and either add or subtract it from the breakout point. This points to a rather sizable move once the breakout occurs. Triangles are like springs: The longer they extend, the tighter they become. The breakout releases the spring and often leads to a sharp break. Get ready....

Arthur Hill

Arthur Hill is currently editor of, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for and the main contributor to the ChartSchool.

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Date: 12/09/04Rank: 5Comment: 

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