The Japanese stock market continues to flex muscles despite the tumultuous stretch that the Asian economy is currently going through. The Nikkei 225 sank nearly 2 per cent last week after Shinzo Abe announced he would be stepping down from his post as the Prime Minister of Japan, but then the index was able to rebound promptly.
Japanese stocks have also remained largely unfazed by the tribulations in the South China Sea where China and the US continue to play a game of maritime chicken with each other, edging closer towards a dangerous escalation of tensions.
In fact, the bullish run of the Nikkei 225 has been so powerful that the price-weighted index was able to wipe out all of its losses that were incurred since the beginning of the coronavirus crisis. It is currently testing a major resistance level that was last checked right before March's stock market crash.
Today's analysis is focused on Nikkei 225's September Futures contract and its price action. Its purpose is to study the possibility for a breakout above this resistance, as well as to weigh in on the likelihood of a minor bearish correction developing immediately before such an attempt at a breakout takes place.
1. Long-Term Outlook:
As can be seen on the daily chart below, several days ago, the price action finally managed to break out above the major resistance level at 23130 decidedly and is currently nearing the historically significant resistance at 23800. The latter is the aforementioned resistance that was last tested prior to the coronavirus crash. Meanwhile, the former served as an upper boundary of a prominent range. Its lower limit is encapsulated by the 23.6 per cent Fibonacci retracement level at 21800.
Understanding the behaviour of the price action around this range is important because it could shed more light on its next direction. As can be seen, it took the Nikkei two failed attempts at forming a breakout followed by two throwbacks before the price action finally managed to establish a decisive breakout.
Consequently, the range's upper boundary is now taking a new role – that of a prominent support. As such, there is a high probability that the price action is going to test it from above. All of this entails high probability that the price action would rebound back towards the 23130 support before it breaks out above the major resistance at 23800.
Several reasons are justifying these assertions. Firstly, the ADX indicator demonstrates the ranging state of the market at present. Moreover, the ADX has been threading below the 25-point benchmark since the 24th of June, and below the 15-point mark since the 17th of August. The Nikkei 225 is ostensibly range-trading, which is not ideal for breakouts/breakdowns of prominent support and resistance levels. In other words, the ranging state of the market is a suitable prerequisite for the development of a new bearish correction, since the price action is nearing a prominent extreme.
Secondly, the price action is currently attempting to form a new swing high above the 23250 level. The latter represents a prominent pivot point, and as such, it also acts as a potential turning point for the underlying direction of the price action. This confirms the primary expectations.
Nikkei 225 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
Thirdly, the Stochastic RSI indicator, which illustrates the momentary equilibrium between the underlying buying and selling pressures, is nearing its 'Overbought' extreme. Given the range-trading state of the market, this could prompt the market bears to step up and cause the creation of a new downswing.
2. Short-Term Outlook:
The 4H price chart below utilises the Fibonacci Fan tool to highlight the different stages in the development of the most recent upswing that was initiated from the 23.6 per cent Fibonacci retracement and went on to break out above the range's upper limit eventually. The behaviour of the price action within the middle of the Fan (the areas in red) is of importance here, as it can be used to project the likely direction and scope of any future downswings and upswings.
Point A marks the initial breakdown of the price action within set area. Point B highlights a rebound from the middle line of the Fan, whereas point C demonstrates an opposite rebound from the area's upper edge. Point D shows the sudden dropdown that occurred after Shinzo Abe's statement. Even the shock value of the news was unable to drive the price action lower than that, which represents a significant attestation of the market's strong bullish sentiment.
The price action peaked below the Fan's middle line at point E, before testing and subsequently picking up from the range's upper boundary at 23130. The final point F represents another failed attempt at a breakout above the area's middle line, which gives credence to the expectations for another rebound towards 23130.
Nikkei 225 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
The hourly chart below underpins the market's preparation at developing a new bearish correction. As can be seen, the price action is currently consolidating below the 10-day MA (in red), which is an early signal of the rising bearish bias in the short-term.
Such a downturn would likely head towards the minor support level at 23400. Its significance has already been proven on three separate occasions, as presented on the hourly chart. The importance of this support is further bolstered by the fact that the 30-day MA (in green) is currently converging towards it. A stronger bearish correction could, however, penetrate the two, in which case, the next potential turning point would be the 50-day MA (in blue). It too serves as a floating support.
Nikkei 225 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
3. Concluding Remarks:
The formation of a minor bearish correction on the Nikkei 225 seems very likely, given the range-trading conditions on the market. Nevertheless, the broader market sentiment remains ostensibly bullish, which means that the bulls are still mostly in control. The index looks bound to test the strength of the major resistance level at 23800 since it was last reached prior to the market crash in early-March.
Profit & Loss
Journal Entries
Sep 10, 2020 - Entry 1
NI225 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
- The analysis as quite right in anticipating a minor bearish correction towards the support level at 23130.00, however, it failed to demonstrate how such a setup could be utilised. That is why the trading opportunity was missed. Traders need to have enough commitment – belief in their examinations – in order to take advantage of the trading opportunities that they recognise.
Disclaimer: Your capital is at risk! Trading and investing on the financial markets carries a significant risk of loss. Each material, shown on this website, is provided for educational purposes only. A perfect, 100% accurate method of analysis does not exist. If you make a decision to trade or invest, based on the information from this website, you will be doing it at your own risk. Under no circumstances is Trendsharks responsible for any capital losses or damages you might suffer, while using the company’s products and services. For more information read our Terms & Conditions and Risk Disclaimer.
Over the past few weeks, the USD has lost nearly 800 pips against the JPY, driven by Japan's shift away from decades of negative interest rates. With the Bank of Japan raising rates for the second time in a row, investors are adjusting their positions to [...]
Despite its volatility, Silver remains in an uptrend. While not as dynamic as Gold, XAG often mirrors XAU’s movements. A Multiple Top has formed around $32.50, and history shows that the more a level is tested, the weaker it becomes, increasing the likelihood of a [...]
A combination of factors, including Trump-era tariffs, the emergence of DeepSeek, and a slowdown in GDP growth, has contributed to the recent pullback in the US30 from its record highs. From a technical standpoint, a Double Top pattern has formed around the [...]
Over the past month, Silver has experienced an impressive 13% surge, marking a strong bullish trend. Despite notable volatility and multiple pullbacks, the overall momentum remains firmly to the upside. This strength is further validated by the Golden Cross, a historically reliable [...]
The Swiss Stock Market has been on a remarkable rally, surging over 15% between December and January. At times, the price action resembled a near-vertical ascent. However, following the announcement of Trump’s tariffs over the weekend, Monday’s trading session opened with a [...]
Between October and January, GBPUSD experienced a significant decline, dropping by approximately 1300 pips. However, we now observe signs of a potential trend reversal. Over the past few weeks, the pair has rebounded by more than 400 pips, shifting momentum toward a [...]
For the past 1 month, the UK100 saw a fantastic 600 point rally! The occasional corrections only attracted more buyers, which is healthy for the current up trend and the RSI currently exhibits elevated demand. A 130 point correction started last week on Friday, dipped below the [...]
Over the past two weeks, Japan’s leading stock index surged 2,000 points, reflecting strong bullish momentum. However, this week saw a sharp sell-off, erasing nearly all gains since mid-January. Despite this drop, the decline stalled at the 61.8% Fibonacci retracement, a key [...]
There is a clear shift in the momentum in the Oil market, with the commodity dropping with nearly 10% for the past 2 weeks. The Death Cross, a classic sell signal, is indicating that sellers are indeed in control and we are lookin now at a strong [...]
The 350 pip rally for the past 2 weeks seems like a trend reversal for EURUSD, with buyers back in control. The strong bullish momentum is also confirmed by the Golden Cross, a historic buy signal. Corrections are healthy for the trend and we currently looking at [...]
For the past 2 weeks GBPUSD went up with 400 pips and this is why we believe we might be looking at a trend reversal. The strong bullish momentum is confirmed by the Golden Cross, a classic buy signal, which supports the hypothesis that [...]
The Death Cross formation in USDJPY signals a robust downward momentum, with the USD depreciating by 300 pips over recent weeks. Further declines exceeding 300 pips are anticipated, potentially reaching the 152.00 level. Despite several corrective pullbacks, the price has been unable to surpass the [...]
Following the formation of a Double Top pattern at the 21,930 level last Friday, the NASDAQ has experienced a significant decline, plummeting by nearly 800 points. This downturn has been primarily driven by unfavorable manufacturing data emerging from China, alongside the Bank of Japan's interest rate hike on Friday. The market reaction closely resembles the [...]
GOLD's uptrend has regained strength, with several factors supporting further gains. The RSI bounced from oversold levels and now stands at 65, signaling growing demand and increasing buying volume. Additionally, the appearance of a [...]
For the past few months, USDJPY gained 2100 pips! Then, about 10 days ago the USD started dropping and so far corrected with 300 pips, dropping down to 155.00. A local Double Bottom got formed and this level also aligns with the important [...]
For the past week, the US100 has surged by over 1,000 points, signaling strong bullish momentum. The RSI stands at 69, indicating high demand and buyer dominance. A bullish Golden Cross pattern has emerged, confirming the upward trend. Despite a brief correction yesterday, with the index dipping to [...]
The Descending Triangle on the 4-hour chart, typically a bearish signal, failed to materialize this time. Instead, the Triple Bottom support at 92,000 held strong, driving significant buying volume. A Golden Cross—a classic bullish indicator—confirms strong [...]
After a 300-point correction from its December highs, the SP500 appears to be rebounding as bulls regain control. This recovery is supported by positive economic data, including strong NFP numbers, low unemployment, and CPI readings meeting expectations—all favorable for stocks. Additionally, the earnings season began yesterday with [...]
For several months, the EUR has been trending downward, losing hundreds of pips. While occasional corrections to the upside occur, bears remain in control. The strong downward momentum is highlighted by the Death Cross pattern, a classic sell signal. Yesterday, we observed another [...]
The Dollar remains strong, with buyers firmly in control since the Fed's December comments hinting at fewer 2025 rate cuts. This drove a 400-pip rally in USDCAD, now facing resistance near 1.4450 as early buyers take profit. Corrections are part of healthy trends, and the pair is testing support at [...]
Today is CPI day, and technical analysis often falters on major news days. Nevertheless, here's our take on the US Tech 100: we anticipate a potential drop of 800-1,000 points. December's Fed comments triggered a selloff, with bears dominating the index for weeks. The strong downward momentum aligns with [...]
