The lower level of this long term trading band is more exactly defined near 10,700. This support level was tested many times between April 2004 and August 2005. There is a high probability it will again form the floor of a support consolidation level between 11,950 and 12,200.
The Guppy Multiple Moving Average (GMMA) indicator captures the relationship between short term traders and long term investors. This relationship gave clear warning that the August to October 2007 index rise was a rally rather than a trend change.
Currently the index is consistently clustered below the short-term group of GMMA averages. This is very bearish. Index activity must be able to rally and penetrate into and above the value of the short-term group of averages as a pre-condition to any change in trend. The upper edge of the short term GMMA group is near to the value of the downtrend line. This combination of features suggest there is a low probability of a significant rally with the strength to move above 13,400.
Combine these analysis methods and it suggests there is a low probability of a trend change developing with a rebound from the 12,000 to 12,200 level. Any rises is capped by the trend line, and by the well separated short-term GMMA. There is a higher probability the market will continue to fall and tests the 10,700 support level.
A consolidation in this area will develop a series of successively higher rallies that are the precursor to a significant trend change. The character of the Nikkei 225 Average suggests that the trend change can develop quickly and clearly. The initial rise in a new trend is capped by resistance between 12,000 and 12,200. The value of the long-term GMMA will provide the second resistance level for any new uptrend.
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