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Still Waiting on Confirmation of Top in Nikkei and Euro Stoxx


If you're looking for a high-probability short setup, it is probably better to wait until a little more evidence is in place to confirm a top.

Based on my firm's Elliott Wave analysis, the Nikkei 225 (INDEXNIKKEI:NI225) tagged the .618 retrace at 15,425 last session, but did so in what looks like a micro 3 wave move. Therefore, despite price reaching the target and backing off already, there is no evidence of a confident top in place yet. The technicals are painting an interesting yet opposing picture on the hourly. The MACD has broken negative divergence and found support above the down trendline, which is typically a bullish signal. However, the RSI is broken below an upward sloping trendline that is now providing resistance, which should be a bearish signal.

Due to this dichotomy, I can't be confident that price is going to cooperate by turning down from here, even though that should be the next step in both of the two most probable counts that I see. If looking for a high-probability short setup, it is probably better to wait until a little more evidence is in place to confirm a top. If you look at the daily chart, you will notice that the resistance region we are watching on the hourly also lines up with the trend line rail that recently broke down. Therefore, I have added a possible bullish count in red if price does manage to break strongly above resistance.

Looking at the Euro Stoxx 50, the STOXX was not nearly as weak as the DAX Performance Index (INDEXDB:DAX) at the end of last week, and is still well above the recent swing low. This chart is much more supportive of the potential i-ii (i)-(ii) count in blue, with wave ii already in place.

However, the same general count as the DAX, with price currently in a c-wave of ii can apply here as well, which is shown by the alt ii. It would more likely just be a double bottom on this chart though, rather than reaching to a new low.

As long as price is above the .618 retrace at 3020, I have to favor the bullish counts on this chart as well, and do not see a confident top in place just yet.

See charts illustrating the wave counts on the Nikkei and Stoxx here.
Garrett Patten is a technical analyst and chief educator for, 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.

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