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Nikkei 225 Technical Analysis: Base Gives Way. What Next?

Nikkei 225 Technical Analysis: Base Gives Way. What Next?

David Cottle, Analyst


Talking Points

  • The Nikkei 225 has slipped below its previous range base
  • Its moving averages are also singing a bearish little song
  • There is hope for damage limitation, but bulls need to act

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When I last looked at the Nikkei 225 its chief feature was comfort at high altitude. Now, well, not so much.

Back at the end of July there was some comfort to be drawn from the fact that, while the Tokyo stock benchmark had been unable to push above the year’s highs, it had at least settled into a trading range with a higher base.

Now that base seems to have given way, if not yet conclusively.

This week’s falls have taken the index below a support line which has held its falls on a daily-close basis since mid-June. In the process, they have wiped out that base put the former one -May’s 19,500 level- back in uncomfortable focus.

Moreover there’s some bearish corroboration too, gleaned from the index’s moving averages. On July 27 the 20-day MA crossed below the longer-term 50-day for the first time since May, 2017. Such a crossover is usually taken to be a bearish sign.

Given all of the above is there anything to which bulls can cling in the hope that things need not get much worse? Well, yes, actually there is. Firstly the index is heading into territory at which it looks oversold according to its own Relative Strengh Index. We are not there yet. And RSI below 30 would be required for a more definite signal. But we’re at 36 and falling.

If the decline can be stopped the bulls’ first task will be to regain a clutch of near-term resistances composed of former support levels.

They might be well advised not to delay though. We can already see the threatening sight of a rare four straight days of falls for the index. If this continues through into a weekly close then the picture will certainly be a little darker.

--- 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.