Friday, November 18, 2011

Japan Sleepily Triggers While Everyone Is Watching Europe

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I have been closely following the Japanese Nikkei Stock Market Index ($NIKK) lately waiting for it to break down below the neckline of a big "head and shoulder-y"-type topping pattern that has been going on for over 2 years now. Well, this week it finally broke on a weekly basis. Ignoring other important global markets is a mistake for American and European traders. The fact that Japan broke down this week means there should be very little weight given to the bullish case for common equities in my opinion (unless this break down quickly reverses course, which seems unlikely at this point).

Here is a 3 year weekly candlestick chart of $NIKK thru today's close with my thoughts:

The target for this breakdown is below the March, 2009 lows regardless of which drawn neckline is used! A general rule for technical analysis is that the bigger and longer the formation is, the more significant it is when it finally breaks one way or the other. A second weekly close below the neckline next week would pretty much seal the deal and it may turn into a waterfall-type decline quickly if this happens. We could drop 2000 points in 2 months or less.

Japanese traders have been through almost 22 years of a secular bear market with no end in sight. They are going to sell first and ask questions later and so are the international traders and investors that have ridden through the seemingly endless Japanese market storm. This breakdown, if confirmed next week, is bearish for all of the global equity markets and would cement the case for a new, potentially big leg down in the current cyclical global equity bear market in my opinion.

Meanwhile, the USA gets ready to come back into the global news flow focus with its "debt committee." It should prove to be just as embarrassing as the summer debt "discussion" debacle. Don't expect any solutions, but there should be lots of finger pointing and chest thumping from the bozos driving the federal fiscal short bus.

In the end, the markets should decline once again in a fairly scary fashion, just enough to get everyone panicking. That's when helicopter Ben will ride to the rescue with some new twist on printing money out of thin air (hopefully with a fancy and misleading name to boot). Until then, Gold and silver stocks as well as silver are unlikely to be safe places to hide and the Gold price may well get smacked down a little more, too. However, the next leg up in the secular Gold bull market should be rather glorious and Gold stocks should finally start to participate. In the mean time, though, buckle up for some volatility. I continue to maintain that this isn't 2008, but that's only because it's worse.

If you're crazy enough to trade in this environment, consider giving my low cost subscription service a try. If you're actually sane, then just buy physical Gold (and a little silver) on every dip, store it outside the banking system and sleep well. Once the Dow to Gold ratio hits 2 (and we may well go below 1 this secular cycle), then it may be time to consider selling or trading your shiny metal for something else.

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