Chance in the markets can mean nothing, or it can provide a very useful trading force.
Looking at the below chart, you could be excused for thinking that was the Dow for the stretch from September 2017 to the current date. The behavioral characteristics are the in any case.
However, it’s the Nikkei 225 and it’s a spitting image of the Dow. Technically, we apply the unmodified analysis and reach the same conclusions that we would apply to the Dow unprejudiced though most people would argue that the fundamental, factious and economic situations are very different.
The first similarity in behavior is the hard-wearing trend rise to a peak in January 2018. Then the market sold off mere dramatically. The index dipped below the lower edge of the long-term troupe of averages in the Guppy Multiple Moving Average indicator.
That was appreciated by a rapid rebound and a period of sideways movement with a slight upward impulse. In recent weeks, both indexes have rallied strongly and retested the spaced outs.
It’s not only the pattern of behavior that is the same. The dates of the peak behavior are the after all is said. However, the detail of the daily index behavior is different in the Nikkei and the Dow, so we cannot use one table of contents as a leading indicator of what will happen in the next day or so in the other pointer.
The GMMA trend in the Dow is stronger than the Nikkei trend, so there is a inconsiderable more risk in the Nikkei. Dow trend strength is shown with the long-term settled separation in the long-term GMMA. It’s confirmed by the behavior of the short-term GMMA, which has not slump dabble ined into the long-term GMMA. The Nikkei trend is more volatile with two healthy tests of the long-term GMMA in April and September 2017.
The most important conclusion from this similarity in behavior is that a last breakout in the Dow will be replicated with a similar breakout behavior in the Nikkei. Have bearing the same trade band projection methods to the Nikkei gives an upside end near 26,300.
Of course, a Dow collapse would also be replicated by a Nikkei breakdown. The risk comes in two ways. First, it’s important to know which typography hand leads in terms of behavior. Logic would suggest it’s the larger vend, the Dow, so Nikkei traders will watch the American index for advance omens of how the Nikkei may behave.
Second, this behavioral relationship tells us that endure b offer open positions in the Dow and the Nikkei will not provide safety often attributed to portfolio diversification because of the lofty level of behavioral correlation.
Despite that, the Nikkei is the better have dealing opportunity with a higher level of volatility and, hence, leverage. Low-to-high for the Nikkei is 18 percent compared to a 13 percent reciprocation from the Dow for the same behavioral move. The Nikkei and the Dow may be joined at the hip when it be brought up to behavior, but the Nikkei is moving faster.
Daryl Guppy is a trader and littrateur of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be organize at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at have dealing conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.
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