The Nikkei 225 could rally to 22,000 points over the next 3 years as a 20-year downtrend in the Japanese index gives way to a strong bull run, Robin Griffiths, technical strategist at Cazenove Capital, told CNBC.
The Nikkei closed above the psychologically important 10,000-point level Friday, giving investors hope for further strong gains. According to Griffiths the current level is a good entry point, but there could be a dip in the short term.
“The breaking of 10,000 is quite significant, also on the fundamental level we’re on the cusp of something very important indeed,” Griffiths said.
The index could see a seasonal pullback in October, however, as it hits overhead resistance between 12,500 and 13,000 points, according to Griffiths.
“This is a heads-up rather than an unequivocal clear call. If we do have a seasonal dip to October (lows) it might come back a bit, but I would be more frightened of missing out on it,” Griffiths said.
“I think from an asset allocation point of view, going into Japan again could be a big one,” he added.
- Watch the full interview with Robin Griffiths above.
The Nikkei had been in a 20-year downtrend which ended in 2003, according to Griffiths. Since then the index has seen stellar gains, and then a sharp decline. But Griffiths thinks that was consolidation in the wake of the downtrend ending.
He now expects the Nikkei to retrace at least half of the entire secular downtrend, which gives a target of around 22,000 points if the bull trend lasts for 3 good years, he said.
The Nikkei is making a pattern of rising highs and lows and coming off a reasonable base, Griffiths said.
The fundamental picture in Japan is strong, Griffiths points out. An impeding change of government and the strategically important role that Japan plays in Asia, in terms of being a technological hub, stand it in very good steed, he said.
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