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Nikkei 225 Technical Analysis: Rescued in the Nick of Time

Nikkei 225 Technical Analysis: Rescued in the Nick of Time

David Cottle, Analyst

Talking Points:

  • The Nikkei has returned from its holiday break in fine spirits
  • However, its last visit to these highs was brief
  • Can investors hope for better this time

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A rest clearly did the Nikkei a power of good.

After three days of closure for the Japanese Golden Week break, the Tokyo benchmark returned to full trade on Monday to find that global indexes had not only kept their vigor but built on it in the interim. Confirmation of Emmanuel Macron’s always-likely victory in France’s presidential vote only added to the upward impetus.

Sure enough, the Nikkei has risen to highs not seen since December 2015. Can it stay up here? Well, if we look at the last time it visited these highs, the omens are not good.

The last try didn’t last.

Back at the end of 2015 the Nikkei only managed to stay around current levels for about twelve days before altitude sickness set in with a vengeance.

History need not repeat itself of course. Current gains are impressive and backed up with rising volume, which is a bullish sign. Moreover, investors may feel justified in hoping for more this time around because the index has climbed from a much more solid base. The year’s trading range is not so far below current levels as it was in 2015, and has endured for longer than it did then.

So, investors may feel entitled to hope that, even if the current highs are rejected, consolidation will just see the index back in familiar 2017 territory between 18673 and 19738. And they may be right, but it’s important to consider that the current rise started from a rather uncomfortable point, as the chart below shows:

That range had broken quite clearly to the downside before the Nikkei was rescued by the current revival. If it cannot consolidate and build convincingly on recent gains, then it may have to fight quite hard to stay out of the downward channel which preceded this rise.

--- 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.