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Corrective Pullback Expected in Nikkei Before Another High

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Elliott Wave analysis calls for a corrective pullback in the Nikkei 225 futures before another high within the current wave.

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Elliott Wave analysis calls for a corrective pullback in the Nikkei 225 (INDEXNIKKEI:NI225) futures before another high within the current wave.

The pullback last week in the Nikkei held higher than expected, near the 1.236 extension at 15,365. Although I expected a little bit lower, this was the scenario laid out by the blue count, which labels last week's low as wave iv of 3. That means both counts should be topping in wave v of 3 this week, so not a considerable difference between them at this point. This top may have already been put in Friday when price came just shy of the 1.618 Fib at 15775, or price may make another attempt to hit the Fib on the nose or possibly even extend to the 1.764 extension at 15,935. I do not expect any higher than that from here without a wave 4 pullback. Ideally this pullback will reach the 1.00 extension at 15,110, but it can potentially hold near the 1.236 at 15365 (especially if price extends to 15,935 first). Either way, the pullback should only be corrective, setting up another high in wave 5 to complete the pattern.

As for the Euro STOXX 50, it has been unable to push to a new high for the month of November, tracing out what can only be called a very ugly price pattern over the past three weeks. Basically, price has made no real progress in either direction, and has been stuck in this range for about a month now. Because no new high was made on this most recent rally, I am still open to price making one more attempt at the 3,110-3,130 region before turning down, but I wouldn't expect it to go any higher than that without a larger pullback first. This latest turn down may have some legs however, in which case I think that price should be heading down back to the 3000 area next. An interim bounce should be seen during that decline however, since it should complete in three waves, and I would expect it to be somewhere around the trend line support below. If 2,985 does not hold, then we can start considering a larger top in place.

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.

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Positions in EWJ and DXJ.
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