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Higher Levels Expected for Nikkei


There's far more clarity and opportunity in the market's pattern in Japan than in Europe.

Looking at two markets half a world apart through the lens of Elliott Wave analysis, we note a lot more clarity and opportunity in the pattern in Japan than in Europe.

The Nikkei 225 Index (INDEXNIKKEI:NI225) futures continue to be my favorite international play at the moment, completing a very clean five waves last week off the low. Price has not quite reached my ideal target for wave 2, but I would not be surprised to see a very shallow pullback here before rocketing higher in wave 3.

So, although I favor viewing wave 2 as incomplete and still need a c-wave back down to 14470 – 14335, it is very possible that wave 3 has started already.

If that is the case, price should continue higher into 14800 – 14915 as wave i of 3, consolidate briefly in wave ii of 3, and then begin the strongest portion of the rally in wave iii of 3 targeting 15375 – 15600.

If not long already, price pulling back under the ideal scenario into the blue target box should be viewed as a buying opportunity. It is possible that the c-wave even extends a bit lower, to the .500 - .618 retrace (14225 – 14115), but as long as price is above 14115, I will continue to strongly favor a move to new highs above the one made in May.

Approach Euro STOXX With Caution

The price structure in the Euro STOXX 50, by contrast, is ugly at this time, so caution is warranted. Price has barely pushed above the .618 extension in the blue count, and technicals continue to deteriorate, which means that anyone who is long at this time should make sure to protect profits in case of a breakdown.

As long as support continues to hold, though, this can keep pushing higher, which under the blue count should be towards 3108 to complete wave iii of 3. The red count, which suggests that we are dealing with a potential ending diagonal, presents resistance between here and the 3108 target, with 3065 being a potential turning region to complete wave c of 3.

If STOXX is unable to push through 3065, then I will be focusing primarily on the red count, with support for wave 4 at 2975. Falling below 2950 is our first signal of a potential breakdown.

See charts illustrating 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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