This is a brief blogpost today on a highly accurately timed trade. I do not often see such a low risk/high prob setup that promises much. In fact, it is a textbook case of how to apply my basic chart reading concepts.
One of the remarkable market moves last week was in the Japan 225 (Nikkei) index. I had been tracking it for some weeks noting it was in a general downtrend off the February ATH. That was in marked contrast with the booming US indexes. Despite negative interest rates and huge central bank buying of ETFs and other assets, The Nikkei lost 12% in this period. Compare that with a 20% gain the the S&P in the same period.
Then on 20 August, it hit a major chart point at a meeting of two reliable tramlines and this was the chart I posted to VIP Traders Club members alerting them to this very bullish set-up on the weekly
If I had identified a major low then, we could expect a rapid reversal due to the large mom div (visible on the daily). This the chart I posted for members advising them of a trade:
Here, I also have a wedge pattern and the low on 20 August fell smack on the meeting of the lower wedge line and the lower weekly tramline. That point held double to usual support and was a high prob reversal point.
We placed our trades and watched in anticipation of a strong rebound. I had no idea of any background news that would emerge but I did not need any! Remember, the news follows the market and lo and behold, some political developments did emerge thereafter that some would take as a justification for a change of heart on Japan. Here is the updated chart
And right on cue, our trade was never in debit as it zoomed like a rocket above the upper wedge line resistance like a knife through butter.
As I believed at the time, it certainly looks like many shorts were caught in a massive squeeze with a 9% surge in days.
So how does all this fit into the longer term picture? Here is the monthly:
The ATH was made in January 1990 – a full generation away! Compare that with the Dow which has just made its ATH. As a certain Mr Kipling once wrote: East is East and West is West and never the twain shall meet.
And this brings up the potential for that other major Asian index – the China A50. Many tech shares have been clobbered by the crackdown by the authorities on the very wealthy entrepreneurs. Apparently, getting rich in China is good according to Xi – but not too rich. But they do not want to cause panic among the ordinary investor and will run hot and then cold with their ‘regulations’.
Now with the index near lows, are we in a similar position here as the Japan 225 was last month?
Note how the index traded in a range from 2015 till July 202 and then broke clear above the major line of resistance. It made its ATH in February – at the same time as the Japan 225 made its ATH. Hmm.
And just like the Japan 225, it then descended in a three down to major support. So if it follows Japan’s example, it should stage a remarkable recovery.
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