Elliott Wave analysis has been quite useful in predicting the path of the Japanese Nikkei 225 index. It not only put us several months ahead of the COVID-19 crash but also helped us to position for the following recovery amidst the panic of March 2020. The last time we wrote about it, on May 31st, 2022, the stock market benchmark was already trading above 27k, up by ~11,000 points from its pandemic low. Instead of taking profits, however, we thought investors can expect even more gains ahead. Here’s how we came to that conclusion.
Our optimism was based entirely on the weekly chart above, shared with readers in late-May, 2022. It revealed that the pullback from 30 796 to 24 682, which took place between September 2021 and March 2022, had a three-wave structure. This meant that it was nothing more than a correction within the bigger uptrend, which was still in progress.
This simple Elliott Wave logic led us to label it as wave II of (III) and prepare for even more upside in wave III. Last month, the Nikkei 225 reached 36 985, gaining almost another 10,000 points since publishing the chart above. The price has also more than doubled since the wave structure turned bullish in mid-March, 2020.
Now, let’s turn our attention to the path forward again and see if there’s more room for the Japanese bulls to run.
The bulls were a bit hesitant at first and allowed wave II to evolve into a w-x-y corrective combination, where wave ‘y’ was a triangle. That delay didn’t change the positive outlook, though. It looks like we’re somewhere near the middle of wave III of (III). If this count is correct, the Nikkei 225 can keep rising in a sequence of fourth and fifth waves. By the time the entire five-wave impulse pattern is complete, targets near the 50k mark would likely have been reached.
Central banks in the rest of the developed world are already thinking about cutting interest rates. The Bank of Japan, in contrast, has yet to make a single hike. Undoubtedly, Japan’s ultra-loose monetary policy has played its role for its stock market rally. But nothing put investors ahead of it quite like Elliott Wave analysis. Now, it suggests that a new all-time high is finally approaching for the Nikkei 225. It’s been a long wait since the last one on December 29th, 1989. Apparently, index investing can be a huge waste of time if you happen to choose the wrong stock market.