Nikkei formed its last major bottom around 13820 in the middle of April 2014. Afterwards it began a rally, which managed to convince many, that the top of 16330 may soon be exceeded. However, no Elliottician starts buying simply because of the rising prices. If you are curious enough to walk through our Education section, you have probably come to the lesson about triangles. And you have probably read that triangles are corrective patterns, which precede the final movement of a larger sequence. Having that in mind, let’s examine the daily chart of Japan’s Nikkei.
On the chart above you can see waves 4 and 5 of a larger impulsive rally. Even if wave 4 was not a triangle, we would still have enough evidence to stay bearish on Nikkei. After the end of the last move of the sequence – wave five – prices declined in three-waves for W. This could have been the whole retracement, if the previous rise was not that big. But since it is, we should expect a correction of similar degree. That is why we think the correction would extend lower in the form of a double zig-zag labeled W-X-Y. If this is the correct count, wave X seems to be an expanding flat near completion and wave Y down could start soon, leading prices to the 12300 area.
