In response to the electoral victory by the Liberal Democrat Party, the Nikkei gapped higher today in Tokyo trading. The gap put it above the downtrend line drawn off the 2010, 2011 and 2012 high. Since it occurred on a Monday the gap is not only to be found on the daily bar charts, but the weekly as well, which theoretically gives it even greater significance.
Gaps are not uncommon in the Nikkei, which often seems to be influenced by developments outside of its time zone. The frequency of gaps may undermine the validity of gap theory.
This Great Graphic we created on Bloomberg, It is a weekly chart of Japan's Nikkei and shows the violation of the downtrend. The Nikkei opened on its highs today and drifted lower to finish the session on its lows. Monday's low was 9826.30. The pre-weekend high was set near 9775.75. The difference is the gap that remains. If there is much of a decline through the bottom of the gap, the next of support is seen in the 9672-9687 area and then 9600.
The yen and the Nikkei are strongly inversely correlated. In terms of simply direction, the inverse correlation stands near -0.85 over the past 60 days, which is a 5-6 month extreme. The correlation of returns (percent change), the correlation is almost -0.46, which is the most for the at least three years.