- The Nikkei was on the launchpad when last we visited.
- Now it seems to have been launched
- But the 20,000 level is both prize and warning
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When I looked at the Nikkei last week, I suggested that it was probably “on the launch pad” for a push higher, even if there might be some doubts about the quality of its support.
And the dear old index proved me right in short order with an impressive June 2 push above the 20,000 level for the first time since December 2015.
The Nikkei’s two sharp consecutive daily rises of June 1 and 2 have put the uptrend from this year’s April lows back on track. Interestingly they are also virtual mirror images of the two big daily slides of May 16 and 17 which threatened it.
Now admittedly there has been no obvious great appetite to push on any further from those two bullish days. But there’s been no rush to take cash off the table either. And with the Nikkei still above 20,000, that’s probably very telling.
Perhaps more remarkably the index has yet to stray into what most analysts would regard as conclusively “overbought” territory either. The Relative Strength Index remains below the 70 level which can be a warning sign, even if it is only below it by a whisker and has risen steadily since the end of May.
Indeed, “overbuying” has not been a feature of this index in 2017 at all by this criterion, aside from a brief burst in early May,
The trouble of course is that 20,000 is both a prize and a warning to investors. Forays above this level may not be unknown, but they have tended to be short-lived, measured in months if not weeks. This means that investors may not be psychologically ready for a long stay and – understandably – prone to bail if the screens go red.
Still, the uptrend is clearly holding, and its lower bound is not immediately threatened. The Nikkei can certainly push on for now. Just watch that RSI.
--- Written by David Cottle, DailyFX Research
Contact and follow David on Twitter:@DavidCottleFX