Talking Points

  • The Nikkei 225 has set new 2017 highs this week
  • Some indicators suggest that it may yet have more to give
  • But some consolidation may be in order

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The Nikkei 225 is perhaps the Asia/Pacific index most inclined to reflect the exhuberance of Wall Street where record highs for Dow, S&P, Nasdaq or all of them at once are now so common as to be barely worthy of remark.

The Japanese benchmark is nowhere near its own record peak. That was hit way back in 1989. However, the index has scaled two year tops this week, boosted by US vigor and the prognosis that the Japanese Yen should weaken in the quarter ahead. This prospect always suits Japan’s plentiful export titans whose goods stand to look more attractibe to US consumers.

So there are the fundamentals. But how safe is the Nikkei looking at these heights, technically speaking?

Well, the moving averages at least paint a rather positive picture. The Nikkei is above its 20-, 50- and 100-day averages and the 20-day has crossed above both its longer-term counterparts since mid-September. This is usually seen as a pretty bullish sign.

Nikkei 225 Technical Analysis: No Clear Sign Of Altitude Sickness

There’s also a rather valid-looking uptrend channel in place since the lows of September 8. This has survived tests of both its boundaries and, if it continues to do so into this week’s close, should validate a degree of bullishness even at these rarified levels.

Nikkei 225 Technical Analysis: No Clear Sign Of Altitude Sickness

Warning signs? Well, perhaps the most obvious one comes from the fact that investors have not seen this index up at these levels for a very long time and the last time they did, its tenure was measureable in mere months. So there may be little resilience to bad news should there be any.

The index is also looking a little overbought according to its Relative Strength Index. There’s always going to be upward pressure on these indicators after a sharp rise but, all the same, the RSI bears watching.

Definite upside targets can be tricky to spot at rarified heights but the capture of the psychologically important 20700 line would certainly underline the bulls’ intent.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX