Catching a Falling Knife?
Japan has been dominating financial headlines recently and below is the daily chart of the Nikkei. One can always Monday morning quarterback, but the signs were ripe for a selloff technically speaking. The tell was the bearish island reversal after hitting more than 30-year highs, and then the rapid deterioration of the cup base breakout was a one-two combo that was too much to overcome. Monday crumbled more than 12%, a historic decline, and potentially one can start to nibble as it is approaching the 200-WEEK SMA just above the very round 30000 number. Risk can come at you fast in stock markets. If we peek at the MONTHLY chart of the Nikkei, notice that it is now coming back toward the 50 MONTH SMA near 31000 which would be a touch of the line following the breakout above a cup base pivot of 30714 in a base that started in February 2021 and the trigger was taken out in March 2023. Notice July recorded a spinning top, a sign of fatigue, with a large range of 5000 handles top to bottom. It has now broken below the bull flag pivot of 34000 and the measured move to 42000 was met almost precisely recently. If one was to venture into this trade do so with caution, but acknowledge that from great risk can come great reward. In regards to catching a falling knife, one should wait until a bullish candlestick develops that one can use as a logical stop on a CLOSING basis.