We have updated our privacy policy and terms & conditions. Find out more here.

Nikkei 225: Bears Still Reign

By  |  Stock Markets  |  Jun 24, 2013 09:13AM GMT  |   Add a Comment
Nikkei 225: Bears Still Reign
By   |  Jun 24, 2013 09:13AM GMT

The Nikkei 225 gaped higher at the open this morning on the back of the stronger US equities close last Friday. However, the optimism evaporated quickly, with the day transforming into a one-way journey south.

It is worth noting that the price gap was not enough to overtake the previous week’s high of 13,513, highlighting the strong bearish sentiment above 13,500. This bearish sentiment can be extended below to 13,325, which was the ceiling early last week. Furthermore, price has also broken below the 13,150 support which was the ceiling back on 18th June and the floor as well at various points last week.

Hourly Chart

Nikkei 225 1
Nikkei 225 1

With the break of 13,150, an Adam/Adam double top has formed and this opens up the base of the first top – around 12,750 as a possible bearish target, with 13,000 providing some interim support. It is possible that 13,000 still manages to hold out even with a Double Top bearish pressure weighing, as Stochastic readings are currently hitting Oversold, and bears may find it harder to break 13,000 due to it being a psychological round number and in the midst of the consolidation zone from 18th June.

Daily Chart
Nikkei 225 2
Nikkei 225 2

From a longer-term perspective, price is still sitting above 12,650 support but below 13,525. As long as 13,525 is unbroken, the decline from May will not be negated and the pressure to re-test 12,650 will continue to weigh on prices. However, if 12,650 manages to hold out, the longer-term uptrend will remain in play and this will help price to maintain a bullish outlook (at least from a technical basis) in the longer term.

A break of 12,650 may be disastrous for bulls as the breakout on the BOJ's 2013 stimulus plan would be invalidated. Given athe current lack of confidence in the BOJ and Abenomics, trading below post-BOJ announcement levels will be a huge morale deflator for even the staunchest of Abenomics supporter. We could potentially see strong bearish acceleration lower which could potentially allow bears to unwind all the gains of 2013.

Fundamentally, there aren’t any strong reasons for the Nikkei 225 to continue rallying. Recently, Japanese leaders have changed their tune slightly with regard to the slide that we’ve seen in Nikkei 225 – instead of saying Abenomics is still working and that the decline is “normal” and already “expected”, they chose to focus on the benefits to stocks and exports of a weak yen.

This is highly peculiar as Japan has previously promised the G20 that they will not focus on a weak currency to revitalize the economy, but rather the weak currency is simply “collateral damage” due to their own version of Quantitative Easing meant to boost the economy. Such statements reek of desperation, and suggest that Japanese leaders are currently at their wits end – which lends weight to the hypothesis that the Nikkei 225 may be unraveling quickly with no proper BOJ response should 12,650 break.

If this happens, we could potentially see the Nikkei going back to sub 10,000 levels and possibly even lower. With US stocks and European stocks climbing lower on global risk aversion, Kuroda et al will need all the luck they can get in order to avert the disaster.

Original post

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data .

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Japan NI225
Are you sure you want to delete this chart?
Are you sure you want to delete this chart?

Successfully Reported

Thank you. This comment has been flagged for a moderator.