The Hottest Market on the Planet: How High Can It Go?

May 13th, 2013

by Chris Kimble

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The world's worst performing stock market index over the past 30-years happens to be the hottest asset over the past 12-months. Which is more important at this time, the 30-year track record or the past year's performance?

In the chart below from a "Power of the Pattern" perspective, long-term patterns and short-term performance are creating a very interesting situation for the Nikkei 225 right now at (4). As the Nikkei has rallied up to line (3) over the past 20 years, declines ranging from 43% to 62% have taken place, reflecting one heck of a strong falling resistance line. Now the Nikkei is facing this line again, the 5th time in 20 years.

See key percentage rallies and declines for the Nikkei in Doug Short's chart (here)

Despite the stellar one year performance of the Nikkei, it has only recovered about 24% of its decline coming off its 1989 highs. Can Japan's massive monetary policy finally be the key to breaking this falling 20-year resistance line? Despite the Nikkei being up 65% over the past year, a break of this line would be a break from its trouble past and should lead to more gains.

What the Nikkei does at this line is really important, not only for Japan, for the S&P 500, other global stock markets, and Bond markets too! Don't underestimate how important this price point is for the majority of assets and how much it could impact portfolio construction!

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