My firm's Elliott Wave analysis indicates Japan is looking up, while Europe’s direction is less clear.
Friday’s rally in the Nikkei 225
(INDEXNIKKEI:NI225) futures was a very interesting development, as it was a decisive blow against the immediately bearish red count that placed price in a wave iii of 3 down. While new lows below the one made in June can still be seen, it now seems that the only way to get there is if a leading diagonal to the downside completes.
This is definitely a step in the right direction for the bulls, since it has reduced the likelihood of the red count slightly. As mentioned in the previous update, the “last stand” support for the bulls is illustrated by the orange box
, between 14,020-13,840. This most recent low came just shy of the upper range of this support region, roughly the .764 retrace of the October rally.
In order to confidently consider the bottom of wave 2 in the blue count as complete already, then price should stay above 14,180 and then push above the downward trend line providing resistance just above, otherwise the support region below in orange may be tested again.
As for the Euro STOXX 50, while the potential exists that wave 3 under the red count is not complete yet, the much more likely scenario is that price is either in a corrective b-wave bounce of 4 under the red count, or if heading to a new high, in wave 5 of the blue count.
Currently, price is sitting just under the trend line support that broke down last week, so it should act as immediate resistance above. Above that, roughly 3,070 is the last resistance before new highs become likely.
New highs would be suggestive of the blue count, and target between 3108 and 3165. Support for wave 4 under the red count is 2,958-2,955.
See charts illustrating wave counts on the Nikkei and STOXX, here
Garrett Patten is a technical analyst and chief educator for ElliottWaveTrader.net, a live trading room featuring Elliott Wave analysis on market indices and stocks. Mr. Patten's focus is primarily on U.S. and international equity indices, and demonstrating the capabilities of unconventional technical analysis. His articles appear on sites including MarketWatch and SeekingAlpha.
Positions in EWJ and DXJ.