Executive Summary

• Nikkei has rallied beyond our August 7 forecast of 36,600-37,600
• Possible secondary high at 39,195, otherwise another high at 40,000-40,300 possible
• Break below 37,264 opens the door for retests of 35,000 and 31,000

Nikkei Rallying in a Corrective Wave?

Nikkei has rallied nearly 25% from the low registered on August 5, 2024.

Shortly after the collapse on August 7 in “Correction Appears Incomplete”, we forecasted a shorter-term rally that might carry to 36,600-37,600. The forecasted rally would be viewed as a temporary bounce within the context of a larger downtrend.

Since that forecast, Nikkei has rallied even higher to reach 39,195 on August 30.

There is a wave relationship that hints a secondary top could form in that price zone. Therefore, it is possible that the August 30 high is the secondary top. The price decline beginning August 30 does have an impulsive patterned structure. Therefore, the original forecast of an ongoing larger decline remains in force.

So long as price remains below 39,195, be on the lookout for a continued price decline that retests the 35,000 low and possibly lower levels.

A break below 37,263 would signal the decline is resuming.

If Nikkei does punch above 39,195, I suspect the breakout would be temporary, possibly reaching 40,000-40,300 where the next wave relationship resides.

Bottom Line

We are looking for signs of a secondary top in wave ii. It is possible that 39,195 is the secondary top and a break below 37,263 will build more evidence a bigger top is in place.

If Nikkei continues to rally above 39,195, then the next level of resistance and wave relationships is in the 40,000-40,300 price range.

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