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Europe and Japan Contend with Crucial Round Numbers

The EuroStoxx 50 and Japan's Nikkei 225, like U.S. indexes, are circling key technical levels

by 11/20/2013 10:02:55 AM
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While there are plenty of round number levels with which the U.S. market is currently grappling (among them Dow 16,000, S&P 1,800, and Nasdaq Composite 4,000), the round number "speed bump" phenomenon I've discussed in this space on numerous occasions is operative worldwide.

EuroStoxx 50 -- Look up "volatile 100-point range" in the dictionary and it should pull up the 30-minute ESTX chart below. Then, look up "round number resistance" and the weekly ESTX chart should appear. ESTX double-topped just above 3,000 in 2011 and did not see this level again until last month. The good news for bulls on the eurozone is the 3,000 level seems to be morphing (as it ultimately should, when a bull market is in place) from resistance to support. The bad news is rallies to (or toward) 3,100 have so far been violently rejected. Also complicating matters for the bulls is the fact that the 3,077 level overhead represents a round number 15% gain for 2013.

30-Minute Chart of EuroStoxx 50 (ESTX) Since Oct. 31, 2013
Weekly Chart of EuroStoxx 50 (ESTX) Since Jan. 14, 2011

Nikkei 225 -- Per the accompanying 30-minute chart, Japan's premier index is making another run at 15,000 -- over the past four sessions, it has managed to overtake and hold above this round number level. In May, the Nikkei was looking unstoppable as it ripped through 15,000, and appeared to have dead aim on 16,000 before about-facing at 15,942 and plunging by 22% over the next three weeks (see weekly chart). The Nikkei has a long history of grappling with round number levels, with numerous rallies turned back at 10,000 over 2011 and 2012 before this hurdle was blown by in the index's January 2013 surge.

In addition to 15,000, we also have a Nikkei level of great interest at 15,593, representing a 50% year-to-date gain (huge for any developed country). And it is significant to note that despite the May high at 15,942, the Nikkei has closed above this +50% year-to-date level on just one occasion this year (at 15,627) on May 22 – the day before the May 23 peak (a day on which the Nikkei ominously closed at 14,483, almost 10% below its high for the session). And in that key May 23 Nikkei session, three separate round number levels were operative -- 16,000, +50% year-to-date (at 15,593), and 15,000.

30-Minute Chart of Nikkei 225 Since Oct. 30, 2013
Weekly Chart of Nikkei 225 Since Dec. 12, 2012
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