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Nikkei Still Looking Higher


The Nikkei 225 continues to hold above the breakout level, although the lack of follow-through so far is a bit concerning.

While the Nikkei 225 (INDEXNIKKEI:NI225) continues to hold above the breakout level, the lack of follow-through so far is a bit concerning for the near-term bullish blue count from an Elliott Wave perspective. That said, as long as price remains above last week's low, probabilities still favor a continuation higher this week in wave iii of the ending diagonal c-wave in the blue count. The ideal target region for wave iii to complete remains between 15025 and 15215 and should be reached in three waves.

However, if price fails to hold above last week's low and instead breaks below it, then a test of the April low should come next and eventually a break below it. The count that would suggest such a scenario is a series of 1s and 2s shown by the red labels. When you have a setup like the red count, though, there's a point when you really need to see a third wave follow-through since you can only rely on so many 1s and 2s before it morphs into a different pattern entirely.

Looking at the European markets, unlike the DAX Performance Index (INDEXDB:DAX), there's no leading diagonal down off the recent high in the SPDR Euro STOXX 50 ETF (NYSEARCA:FEZ), so the only impulsive interpretation would rely on a truncated high. Therefore, as long as price can hold the approaching uptrend line, the red count still has a slight advantage.

If the uptrend line breaks though, then price is likely heading to test the 4/25 low next. Under such a scenario, the move may just be a minor c-wave of the alt red count, though, in which the b-wave isn't complete yet. A convincing break of the 4/25 low, though, would suggest something more bearish is playing out under the blue count and could be interpreted as a wave iii down in progress. The blue count would eventually take price below the March low in a larger c-wave.

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 US 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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