From "Technical Analysis of the Futures Markets: A Comprehensive Guide to Trading Methods and Applications" by John J. Murphy, Prentice-Hall, 1986:

"The flag and pennant represent brief pauses in a dynamic market move. In fact, one of the requirements for both the flag and the pennant is that they be preceded by a sharp and almost straight line move. They represent situations where a steep advance or decline has gotten ahead of itself, and where the market pauses briefly to 'catch its breath' before running off again in the same direction.

"A bullish pennant resembles a small symmetrical triangle … the move after the pennant is completed should duplicate the size of the move preceding it.

So … with apologies to the Chair and all others who believe that this is a load of mumbo-jumbo (and I count myself among those folks EXCEPT when the chart agrees with my bias and position), I note that the Nikkei since May has been in a Bullish Pennant and if last night's move over 15,000 is sustained and extended somewhat, then Mr. Murphy would expect the Nikkei to approach 20,000+ in the near future.

Unrelatedly, but quantifiably, I would further note that the Nikkei is now within a cat's whisker of having a 10 year total return (in US dollars) that is equal to the S&P demonstrating the magnetic pull of reversion to the mean. (The S&P has been compounding at about 7.5%/year.) This is a factoid that few know or would believe and is thus a stealth bull market, which is the most insidious and powerful kind of bull market. Only after the Nikkei's performance has exceeded the S&P's for a few years will the public (and pundits) wake up and announce that "Japan is back!" much like gold bulls awakened in 2009 as evidenced by both Google Trend searches and price.

I was bullish and early on the Nikkei, when it was an extremely contrarian view. I remain (on balance) bullish on the Nikkei even though it's somewhat less contrarian. My opinion plus $1 can't buy a cup of coffee, so reach your own conclusions — but don't fight the trend.


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