The U.S. Fed Minutes hinting at a slowdown in stimulus efforts was one large factor in the over 7% slide the Nikkei experienced this morning. Another factor is a lower than expected Chinese manufacturing report. Do the sudden drops in the U.S. and Japanese markets mark a top to the powerful Bull Run we have been experiencing in the last 6 months? Today’s NinjaTrader and Mr. TopStep Chart of the Day look at both the Emini S&P 500 Futures and Nikkei futures charts over the last year.
The chart above shows the Nikkei ($NKD_F) daily price action as red and green bars with the Emini S&P 500 Futures ($ES_F) is the background as a grey Mountain style chart. (The Mountain Style bars can be downloaded as a free add-on from the NinjaTrader Support Forum). It is easy to see that both markets have been in a powerful bullish trend since November of 2012, however today’s large fall by the Nikkei is a glaring warning that the bull move may be close to an end. Also notice the “Balance of Power” (BOP) indicator located at the bottom of the chart shown as a blue histogram. This indicator measures the strength of bulls vs. bears by assessing the ability of each to push price to an extreme level. The BOP reached its highest levels on May 21 st and May 22 nd , signaling a possible over bullish sentiment in the market leading up to today’s large drop. Today’s BOP reading also signals that this indicator could be heading in the other direction as profit taking and those attempting to short the top jump into the market.
Overall, the U.S. and Japanese markets are still well within their long term bullish trends and short term pullbacks may be an opportunity to jump on board for the ride. However, with such a long bull run, traders are starting to fear that a top must be near and recent economic and fundamental news is starting to turn south. Traders will want to watch how price moves in the next few weeks for confirmation on how institutions are dealing with the recent market news.
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