Nikkei 225 Trading Above 13,000 Again

Hourly Chart

The Nikkei 225 started the week brightly, forming 10 consecutive bullish hourly candles on the trot, reversing losses suffered last Friday and then some. This is highly unexpected considering the bearishness on Friday, which closed below the interim support of 12,750 during the US trading session, with US stocks closing bearishly – ending the day -0.59% for S&P 500 and -0.70 for the Dow.

To be sure, bears did overextended themselves, with stocks gapping lower but not as low as where Futures were. This resulted in a quick rally in Futures when the Tokyo Stock Exchange opened. But that is not all, it seems that physical stock traders were on a totally different mindset from Futures traders, with price continuing to climb higher from there without reply, overcoming Friday’s close rather quickly during the first hour of trade, and finally crossing 13,000 by the end of the trading day.

It seems that Futures traders are sold on the bullish argument, with current prices continuing to rally after off-market hours. Price has since broken the 50.0% Fib which is the confluence with Jun 14th’s high, suggesting that the decline from last week’s high has been negated.

Currently, however, price has not managed to successfully break away from the level, with a retesting of the 50.0% Fib line happening right now – immediately after breaking it. With Stochastic readings heavily extended right now and looking to head lower, a strong confirmation is needed to ensure that a “fakeout” is not in play.

Fundamentally, there aren't any strong reasons for the Nikkei 225 to be rallying. Newswires remain quiet while there are no scheduled major economic data releases today (at least as far as Japan is concerned). The rebound is looking more and more like a technical rebound higher (aka Dead Cat Bounce) and it will not be surprising to see price collapsing after bears gain initiative once again.

With no new plans from the BOJ nor any hint of any intervention against current flash decline, it is unlikely that the Nikkei will be able to rally much higher from here, especially given current weakness in global equities.

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