Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
While the S&P 500 has had quite a year already the Nikkei has been the story of the globe as they are performing acts of central banking that even put the U.S. Fed to shame. And Japan’s central bank can buy ETFs and REITs directly per their charter versus the U.S. bank. Combined with a yen in free fall it’s been a heck of a move for the Nikkei since last November. I noted last week we were seeing extremely rare weekly and monthly type overbought readings on both the U.S. and Japanese markets but with central banks with their pedal to the metal these things can subsist longer than you can remain solvent if you bet against them. As in fall 1999 and early 00 you just never know when these things exhaust. But finally we are seeing some the situation relent.
On the weekly Nikkei chart below the entire candle this week had been above the upper bollinger band – a rare thing indeed for an index. It is one thing to scuffle along the top of the upper BB, but jumping completely above is not something one sees often over the years. This has now been “fixed” with the huge drop yesterday.
That said, even with tremendous move down the Nikkei has only fallen to its 20 day moving average on the daily chart, showing how incredibly overbought it had been!
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