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Nikkei 225 Technical Analysis: Comfortable At The Heights?

Nikkei 225 Technical Analysis: Comfortable At The Heights?

David Cottle, Analyst


Talking Points:

  • The Nikkei 225 has posted a new high for 2017
  • There’s a modest degree of overbuying evident, but it doesn’t look worrying
  • The moving averages still tell a bullish tale

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The Nikkei 225 has just hit a new high for 2017, which means it’s also at levels not seen since August 2015.

Borne aloft by a general revival in global risk appetite (US stocks have made their forty-second record peak for 2017 this week) and, possibly, by some upbeat Japanese numbers, the Nikkei’s gain leaves us with one big question. Can it stay up here and push even higher?

The technical signals are mixed, as they were always bound to be at such elevated levels. But they are far from gloomy. Yes, the index’s Relative Strength Index is looking a little stretched. At the 72 level it is just above the 70 line above which most investors would consider the index “overbought.” However, it’s hardly comfortable above that line yet.

More encouragingly for bulls the index is looking very comfortable indeed above its 20-, 50- and 100-day moving averages. That has been a rather rare sight this year and suggests that the Nikkei may yet have more to give. Moreover the 20-day crossed above the 50 on Wednesday. This is generally held to be a bullish sign.

It’s probably best not to take the moving averages as signs of a certain push higher. They’ve been very close together for some time, making crosses short lived before reversal and tough to read. However, the latest is certainly not a bad sign for bulls.

For now, the index is slap in the middle of its most recent uptrend channel, that traced from its September 8 closing low.

This is quite a narrow channel and it may not tell us a huge amount. That said a Friday close within it, and anywhere near current levels, will probably count as a satisfying end to the week’s work for bulls. It would also bolster hopes that the index can, at least consolidate up here. Keep an eye on that RSI though.

--- 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.