Saturday, November 28, 2009

Keep watching the Nikkei to forecast the Dow's eventual move.

I was looking at my posts from October 20th when I said if you want to know where the Dow was going to go, watch the Nikkei 225 Index. As you can see above the fist chart shows where we were back on October 20th and it showed we broke above the resistance line but then retreated back below it. The 2nd chart shows where the Nikkei last closed. You will notice that the Nikkei did continue to go lower and, in my view, it foretells of the fate of the Dow. (Note, all 3 charts are on Log scale and are 5 year charts.)

The third chart below is a 3 year chart of the Dow. If you look at both the second chart above of the Nikkei and then look at the Dow chart below, it appears that both Indexes have retraced back to there they were near the end of October of 2008 where both Indexes dropped precipitously. There has been a divergence between the Nikkei recent drop and the Dow. It is clear to me that the Dow has gotten ahead of itself.

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