Nikkei Futures traded below 13,000 during US trading hours yesterday, being pushed by risk aversion flows which sent Dow Jones Index and S&P 500 to their largest daily loss since April 15. However, price did not spend long under 13,000, with a quick rebound during early Asian session sending price back above 13,250, only to be rebuffed by the descending trendline (or Channel Top if you prefer) which has been in play since 2 days ago. This rebound happened in spite of USD/JPY staying close to 99.0, and without any other fundamental news driver supporting higher stock prices. Looking across the East China Sea, Asian stocks aren’t doing well either, with Singapore’s Straits Time Index trading 1.09% lower, Hong Kong Hang Seng down by 0.78%, and Korea Kospi down by 1.52%. The Australian index is also trading lower at 0.64%, suggesting that risk trends are following in the direction of US stocks, which makes the rebound of N225 all the more peculiar.
This lead us to believe that current rally may simply be a short-term correction ala Tuesday’s recovery which was equally inexplicable. Prices has decline more than 3000 points from peak to trough, and indeed like what many Japanese Ministers have said recently – a correction following such strong moves is not surprising. It is rather ironic though, considering that they were referring to the current decline vis-a-vis the strong rally since November 2012.
From a technical point of view, current recovery rally is certainly not enough to break the bearish outlook. Furthermore, the “Spinning Top” candlestick suggest that price may reverse in the next few hours, in line with post lunch trade in Japan which tends to move in opposite direction of morning movements. If price manage to rally post lunch break, then the possibility of breaking the descending trendline becomes higher and the “spinning top” candlestick can be interpreted as a point of inflexion (a point where bulls take break) for an extension of current bullish correction.