MACD crosses signal line on N225 monthly chart
Convergence of an overhead resistance in the form of a trend line that goes back to a market high in year 2000 together with a MACD signal spells trouble for the Nikkei 225. When pieces fall into place, expect Nikkei 225 to go into correction. Signal on monthly chart indicates that the correction is likely to be a significant one. Bear in mind also 15600 region is also significant Fib-R level.
Nikkei 225 monthly chart; signals that appear on this time frame have severe consequences due to significance
- A MACD signal is printed when the MACD line (blue) crosses its own signal line (red). Cross down signal is bearish.
- Drastic consequences of such signal in the monthly chart at points 1 and 2.
- Orange shaded zone shows the outcome of such a signal.
- Signal printed recently at point 3.
- Overhead resistance in the form of the very long trend line in a confluence and makes the MACD more reliable.
- Market may not fall instantly. Notice back in year 2000, market corrected first (A.) before MACD signal at point 1 was printed. Year 2007 on the other hand showed MACD signal at point 2 printed before Nikkei 225 corrected (B.).
- When index/price corrects ahead of signal, the signal serves as confirmation.
- When signal appears before index/price movement, signal is a warning sign.
MACD nears zero-line on N225 weekly chart
On the weekly chart, two pieces of development backs up the bearish picture served on the higher time frame.
Technical picture of weekly chart reinforces monthly picture
- MACD showed bearish divergence compared to Nikkei 225 at the beginning of the year.
- Rally is losing momentum.
- A potential MACD signal is setting up near to zero-line or zero axis; MACD below zero-line signals index entering down trend.
- Index crosses the blue trend line acting as support in conjunction with MACD crossing its signal line AND its zero-axis would be a triple signal.
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
Soh Tiong Hum is a member and regular speaker at Technical Analysts Society Singapore events and has a bi-monthly lunch time event at IG Singapore on forex and stock markets. He is an avid blogger on technical analysis topics; his Twitter account @sohtionghum
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