Talking Points:

  • The Nikkei 225 seems to be forming a rare higher high
  • But it is still some way short of the downtrend from its 2017 peak
  • A higher peak now could well be spurious

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The Nikkei 225 bounced at the bottom of its trading range last week only to blow clean through the top of it

on Wednesday in an impressive, three-day bull run.

However, while price action has clearly validated the bottom of the range, it has yet to finally dispose of the top. Punchy though this week’s action has been – and part of a global rise in risk appetite – the Nikkei now looks somewhat short of breath on its daily chart.

Nikkei 225 Technical Analysis: Don't Bet Farm On This Range Break

For sure, Tuesday’s peak of 19,871 will constitute a higher high than the two previous peaks – 19,672 on August 31 and 19,834 on August 15 – if it’s confirmed. However, it will still be a lower high than August 7’s 20,000-and-change. It will also constitute another failure to breach the downtrend line in place from 2017’s high.

Nikkei 225 Technical Analysis: Don't Bet Farm On This Range Break

The question now is whether the Tokyo benchmark is building itself into a higher range, or whether the status quo ante will be resumed. Right now, neither the moving averages nor the momentum indicators are sending very useful signals, with all looking quiet enough. With that in mind the best move for the uncommitted now may be to see where we close out the week. If the Nikkei remains above the previous range, then perhaps it might make sense to position for a higher one. That means above 19,743, by the way.

If we don’t then 500 or so points the market has had to play with since August 10 will probably remain all it has.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX