Weak data are bearish for Nikkei
Falling trade surplus and weaker private investment expectations are bearish for Nikkei. Will NIKKEI continue falling?
Japan's economy expanded 2% on the year in the second quarter, accelerating from 1.5% growth in first three months of 2017. While the main contributor to the growth was stronger private consumption, recent weak wage growth provides little hope for a sustained increase in consumption through higher private demand. As weak earnings growth highlights risks to continued economic expansion trade surplus continued to narrow in July: the trade surplus narrowed from JPY 440 billion in June to JPY 419 billion in July 2017 as imports increased more than exports. At the same time stronger yen and rising US protectionism spur concerns about Japan’s export outlook. And declining core machinery orders in June for the third month consecutively signal weaker private investment. Weak external sector earnings and private investment expectations as weak wage growth makes sustained growth in private consumption unlikely is bearish spending.
On the daily chart the NIKKEI: D1 has been falling for the last couple of weeks after trading in a narrow range since the beginning of June. The price has fallen below the 50-day moving average MA(50) toward the 200-day moving average MA(200).
- The Donchian channel indicates no downtrend yet: it is flat.
- The Parabolic indicator gives a sell signal.
- The MACD indicator is below the signal line and the gap is widening, which is a bearish signal.
- The stochastic oscillator is rising but has not reached the overbought zone.
We believe the bearish momentum will continue after the price closes below the lower Donchian bound at 19266.90, confirmed also by fractal low. A pending order to sell can be placed below that level. The stop loss can be placed at Parabolic signal at 19760.90. After placing the pending order the stop loss is to be moved every day to the next fractal low, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. More conservative traders can switch to the 4-hour chart and move the stop-loss in the direction of the trade. If the price meets the stop loss level (19760.90) without reaching the order(19266.90), we recommend cancelling the position: the market sustains internal changes which were not considered.
Technical Analysis Summary
Position - Sell
Sell stop - Below 19266.90
Stop loss - Above 19760.90