$NIKK, the most widely followed Index of Japanese Stocks saw a meteoric rise in its price from 12,500 to 40,000 during the years of 1986 to late 1989. During the period of 1987 to 1991, the Index traced out a clear HEAD AND SHOULDERS TOP, with neckline support being violated around 22,000, an incredible decline.
Once this key level was violated, the next ten years was spent in a sideways pattern wherein that NECKLINE SUPPORT was challenged from below and became stiff RESISTANCE. Unable to break through this level, the BULLS threw in the towel and in tandem with the "tech bubble meltdown" the $NIKK saw a relentless decline gown to 7,000 well below the levels where it began its meteoric rise.
During the years of 2001 and 2005, the Index traced out what appears to be a HEAD AND SHOULDERS BOTTOM pattern with NECKLINE SUPPORT at the 12,000 level. Once this level was surmounted a quick 6,000 point rally occurred which busted through BLUE TRENDLINE RESISTANCE. However, over the next couple of years 18,300 became overhead resistance and upon failing at that level a few times the Index began to fall and has since retraced most of its previous gain from the neckline breakout and now sits around the mid 13,000's as the recent pullback in Global Equity prices has taken its toll in Japan.
That being said, it looks like the $NIKK should have pretty strong support around the 12,000 which is both NECKLINE RESISTANCE TURNED SUPPORT and also RESISTANCE TURNED SUPPORT of the triangle from which the price broke out in 2005. It is possible to envision a scenario where in the midst of a severe decline in Global Equities the $NIKK could form a double bottom thus carrying the Index back to the 7,000 area. Thus the 12,000 level must be watched closely...