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Japan

Recent price action on Nikkei increases the probability that the current correction is developing as a sideways move, most probably a triangle.

This points to a final move higher, most probably to 17000 which is also very close to the 2007 top (18200)

 A move below 10000 would invalidate the whole analysis but even a weekly close below 11300 would make me very nervous.

Italian 10Y

Italian yields are tracing a potential reversal pattern. A break above 4.5% would be a warning signal and a break of the 5% level would put a high probability on a continuation of the move to 6%-6.2%.

This would be a 2% move from today level and may well happen swiftly. Expect renewed talks of default/renegotiation etc if this happens.

Unnoticed by most people, yields have finally managed to break this down sloping trendline (red circle, Chart1), reached 5%  and have been drifting down since while staying above the dashed line.

 

If we zoom in these last 9 months (chart2), we can identify a potential reverse head and shoulders, which is a very reliable reversal pattern. Moreover, the right shoulder is now forming a falling wedge, which is another reversal pattern.

A break of the wedge on the upside (should be somewhere around the 4.5% level) would increase significantly the possibility of a move to 5% where we have the neckline. A break of the neckline would complete the reverse H&S and point to a swift move to 5.5% (first) and 6%-6.2% later as final objective.

Chart1                  

 

 

 

 

 

 Chart2

                                                                                                                                                                                                                

 

 

 

Commodities

After falling for more than 2 years (peaked in May 2011), the CCI index looks like has found some support.   A 15% rally from the current level to 600 is totally possible even if considering we may be in a secular bear market.

This follow the 25% rally from the bottom of gold miners (anticipated as a strong possibility a few weeks ago) and the bullish move in oil , where 120 on the WTI remains my first target (10% higher from here).

-          The CCI Index has found support at 500, where we have the 2012 bottom and 2 intermediate tops in the 2010 rally

-          The index has formed 2 distinctive bottoming candle patterns:  a morning star first and a hammer/bullish engulfing afterwards

-          MACD is clearly diverging on a weekly basis

-          We can count 5 waves done, with wave 5 extended as it is common in commodities moves (in equities wave 3 tends to be extended)

 

Alll of this points to a completed move and therefore to at least a partial retracement. A 38.2% retracement (bare minimum) would push the index up 10%. My inclination would be for a deeper retracement, to test previous resistance at 6oo which also coincide with the 50% retracements ( a 15% move from here).

 

A break of the 500 level and a close below would invalidate this analysis and point to much lower prices.

 

Chart1       

                                                                                                                                                                                                            Chart2