The long term analysis of the most representative Japanese index brings an ample range of information on its technical situation. In fact, it shows the most common moves that prices can be developed and consequently, analyzed by means of Statistics.
The Nikkei carried out a lateral move for 20 months, since January 2004 to August 2005. The range wasn´t too wide, but the purchasing and the bear positions were well established, which facilitated a speculative strategy between 10.500 and 12.000 points. This scenario involves a trader´s more demanding attitude in order to make a profit.
The 12000-point breakout lead this index to the highest of 18.000 points. This scenario´s main feature is its rising trendline. The only coherent strategy is to maintain long positions. Therefore, trader´s only mission is to watch over a possible trendline break-down.
From July 2007 to the lowest level of March 2009 the Nikkei developed a clear downwards trend. Logically, the only possible strategy was a short position as a general rule. Nevertheless, we can realize that prices built a channel where rising movements were sometimes brought about. For example since March 2008 to July 2008, the Japanese index soared dramatically from 11.700 to 14.700 points, which means a 25% increase.
Finally, the question is if a new rising cycle has began in March 2009. So far, this is the most evident hypothesis, as succesive higher-lows appear. The last two supports have been 9.000 and 10.000 points. So the rising trendline must be watched over.
The long term recommendation, from a technical viewpoint, is to maintain long positions with a stop loss in 8.900 points.
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