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Nikkei Finally Breaks Out


The Japan index has cleared all resistance necessary in order to confidently say that price should be on its way to new highs for the year.

After months of waiting, the Nikkei 225 (INDEXNIKKEI:NI225) futures finally broke out of the triangle pattern to the upside, according to Elliott Wave Analysis, clearing all resistance necessary in order to confidently say that price should be on its way to new highs for the year. At a minimum, 16,200 should be hit, but the potential for extensions past that target exist that could take price to 16,600 or even higher.

If currently long, or looking for a long entry, just watch the important support levels to help navigate this path to new highs. Critical support is at 14,700, which should be maintained at all times going forward in order for new highs to be seen. A break below this level signals that the pattern has failed and new lows are likely coming. Above that, 14,850 is support that price will not dip below under the ideal scenario. Immediate support is 15,100, which may hold if the Nikkei is exceptionally bullish and is going to see extension.

On Friday, the Nikkei closed just below the 1.236 extension of wave 1 at 15360, which is the typical target for wave iii of 3. However, when closely examining the price pattern up into that level, that high potentially only completed wave (iii) of iii, which is one of the reasons that I think extensions in this rally are possible. If this is the case, then wave (iv) of iii should hold at the 15100 support and wave (v) of iii should target the 1.382 extension at 15520.

As for the Euro STOXX 50 (NYSEARCA:FEZ), although it managed a decent recovery last week similar to the FTSE 100 (INDEXFTSE:UKX) and DAX Performance Index (INDEXDB:DAX), it is still not encouraging that price is on its way to new a new high yet.

This possibility is marked as "alt 4" in the red count on the chart, but I believe that another push down in wave c of 4 in the red count is a much more likely outcome for this week. Price can still push a little higher before this is seen, but as long as it remains below 3070, my primary expectation will remain that a trip down to 2980 – 2950 will be seen.

As long as this support region holds, it should lead to a new high in wave 5 of the red count, with an ideal target of 3165. If this support region does not hold however, then a top may already be in place, and price should target 2880 in wave iii off the high in the blue count.

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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