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Technical Analysis: Nikkei 225 on Launchpad, But Watch 2017 Low

Technical Analysis: Nikkei 225 on Launchpad, But Watch 2017 Low

David Cottle, Analyst

Talking Points:

  • The Nikkei has had an inconclusive couple of weeks
  • It looks to be consolidating for a push higher
  • But keep this year’s low in mind.

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From a near term-perspective the Nikkei 225 is still being maddeningly elusive.

It posted its low for the year on April 17, before staging an impressive rally to seventeen-month peaks on May 9. Perhaps understandably exhausted with all that action the thing has been deadlocked since. The last ten trading days have seen Japan’s major equity benchmark confined to a rather tediously narrow range.

Clearly something has got to break here, but will that mean a push higher or another test of those mid-April lows?

Well, while the index certainly has not yet shown much enthusiasm to push on, it does seem at least to have consolidated its position around the highs. After all we remain well within 100 points of them and clear selling pressure is notable by its absence. That’s obviously a bit of good news for bulls.

But it might still be helpful to take a step back and look at the broader history of the current uptrend. It has been in place since the lows hit all the way back on June 24 last year.

And from this perspective things look a lot more positive for the Nikkei. The index clearly remains safely within the bounds of this mature, gradual rise. Viewed through this lens the current period of consolidation looks very much like the prelude to another move higher, and it probably is.

A word of warning though. The slip to this year’s lows took the Nikkei closer to the lower bound of this channel that it had been for quite a while. It hadn’t been as near since July 2016 in fact. The channel’s health is obviously important for the longer-term vigor of the index, so investors would perhaps be wise to keep an eye on that low and be wary of a revisit.

Those lows do need to hold. If they don’t this old support area could find itself rather vulnerable. Don’t forget that, apart from the low of June 24 itself, the lower bound of this channel is defined by only one intraday low, that provided by the very wide trading range of November 9. That low looks a little spurious and it must be debatable how strong that lower bound of this line would prove if threatened.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.