Japanese Nikkei 225 Index

Japanese Nikkei 225 Index

Another equity index which I thought would make for an interesting analysis is the Japanese Nikkei 225, which made its high in December 1989 and has seen a general decline from there which thus far has lasted over 20 years. I think we can say without too much argument that this was a strategic high and probably also the end of a five-wave rally. Therefore I'd like to present what looks to me to be the structure of the decline from then.

I shall cover the initial basic moves first and then break down the movement seen during the past 10 years in more detail to highlight the harmonic structure.

Figure 7.14 displays the monthly chart of the Nikkei 225 Index, from which it can be seen that the structure appears to be a Triple Three. The first two (a)(b)(c) declines are complete, while the third is either on its final Wave (c) or alternatively the Wave (b) may be developing as a complex correction. The first two (a)(b)(c) declines are recorded in the following tables.

 Figure 7.14 Decline in the Japanese Nikkei Index since the 1989 High

Table 7.16 displays an accuracy that sees a variance from standard retracement and projection ratios of around 1% or less. I therefore feel there is a strong argument for this wave count to probably represent the correct structure.

 Table 7.16 Decline in Nikkei 225

Since the third Wave (a) has already developed, followed by a correction higher, the question of whether we are in a final decline in Wave (c) that would generate a reversal higher, or whether this will develop as a complex Wave (b), is very critical. I have therefore provided these waves in more detail.

Figure 7.15 shows the five-wave harmonic decline in Wave (A) followed by the three-wave correction. This may have completed Wave (B) or possibly be the first wave of a complex correction. Given that the low from the Wave (B) peak has moved below Wave (A) it may be possible to alternatively label the Wave (B) high as Wave efa. This would imply that the current decline is Wave efb.

 Figure 7.15 Wave (A) Decline and Correction in Wave (B) or Wave efa

As can be seen from Table 7.17, the Wave (A) decline developed with all retracement and projection ratios being common harmonic relationships and the variance from those being extremely limited. From that point of view, I am confident this was a valid Wave (A).

 Table 7.17 Wave (A) Decline

The correction in Wave (B) developed in three waves; Table 7.18 provides the wave relationships.

 Table 7.18 Wave (B) Relationships

Again the majority of wave relationships are common harmonic ratios. There are one or two more unusual ratios—for example, the Wave iii in Wave -a-at 441.4% is not one I would normally expect to see—but the 95.4% projection in Wave c of Wave iii is very common. In general the levels of variance between the ideal harmonic ratios and actual stalling points were limited.

Therefore, we have had a Wave (A) lower followed by a deep correction in three waves that consequently raises the potential for the Wave (B) to develop in a complex manner. To try to decide whether the decline from there will be the final Wave (C) or whether it will be an Expanded Flat, I have detailed the wave relationships in the decline so far (Table 7.19).

 Table 7.19 Wave Relationships in the Decline So Far

It can be seen this time that to judge whether this decline is corrective or impulsive I have added the alternative count next to the preferred count shown in Figure 7.15. If the Wave -c-low at 7,021.00 was actually Wave (iii), it would have implied a projection of 344.4% and the correction from there which reached 11,408 would suggest a Wave (iv) retracement of 41.4%. I can't say 344.4% is a projection ratio I would expect, but there were one or two unusual projections so possibly retaining an open mind may well be preferable.

If this turns into an Expanded Flat then ratios we may look for would be:

14.6% 6,041

23.6% 5,078

38.2% 3,517

If an assumption is made that the correction at 11,408 was a Wave (iv) then projections in Wave (v) could be estimated at:

61.8% 4,437

66.7% 3,884

76.4% 2,790

Furthermore, the common projections in Wave (C) can also be generated:

105.6% 4,330

109.2% 3,854

123.6% 1,949

I would suggest that if this turns out to be an Expanded Flat then the 14.6% or 23.6% expansions at 5,078-6,041 are the most likely. However, what is striking are the 61.8% projection in alternate Wave (v) at 4,437 that matches closely with the 105.6% projection in Wave (C) and the 66.7% projection in Wave (v) at 3,884 that matches closely with the 109.2% projection in Wave (C). I am open to either alternative.