Nikkei 225: A Long-Term Technical Pattern Like No Other in the World

March 06, 2023
By Steven Vannelli, CFA in Markets

The Nikkei 225 (NKY) peaked in December 1989, and in local currency, has yet to reach the previous peak. But, I look at stocks from the standpoint of a US investor, meaning any foreign asset needs to be translated into USD. Yes, one can hedge foreign currency exposure, but it is difficult, expensive, and actually reduces the diversification benefits of international exposure.

After a roughly 30% tumble and subsequent short-term stabilization, the NKY stabilized around 200, when we translate the NKY into USD. This level served as a level of resistance all the way through 2019. Then, in the wake of the COVID pandemic the NKY surged, not just blowing through the resistance at 200, but also taking out the 1989 high of 267. On February 14, 2021, the NKY peaked at 286. Since then, the index has fallen back to 32 years of support at 200.

After making a low on March 9, 2009, the NKY has been in an uptrend. We are approaching what would appear to be a long-term technical fork in the road as the ascending wedge closes out in 2024. With the NKY bouncing off the uptrend line in October 2022, it looks promising.

In the shorter-term, the NKY just experienced a golden cross on January 23, 2023, and the index has held above the 200-day moving average since January 17, 2023. This is happening at the 200 index support level, it should be noted.

I like to buy breakouts from a long-term trading range. I can’t find another asset in the world that just broke out of a 32-year consolidation, trading range period. I think the technical set-up for the Nikkei 225 (USD) is like nothing else in the world. The catalyst could be the fact that, according to my work incorporating intangible assets (The Globalization Myth), Japan is the cheapest developed market in the world. Oh, and according to the OECD, the Yen is 33% undervalued.


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