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Talking Points:

  • The Nikkei is bearing up quite nicely, not too far from its highs for this year
  • But, that said, the index isn’t in any obvious hurry to break new ground to the upside
  • Indeed a near-term uptrend channel is now under some threat

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The Nikkei 225 daily candlestick charts present the technical analyst with a clear difficulty at present – that of finding a meaningful set of near-term trend lines.

Last Wednesday’s intraday low and November 9’s intraday high both skew the picture perhaps unacceptably if they are included. In any case they both look quite spurious even if the latter level does represent this year’s high point so far for the Tokyo equity benchmark.

However an arguably more meaningful uptrend channel can be drawn if we ignore both and instead focus on the climb in place since October 19- itself a portion of the overall rise from the lows of late August.

Nikkei 225 Technical Analysis: Near-Term Uptrend Under Threat

And what we see here is a little disquieting, at least for those with bullish hearts. For while the Nikkei might looks comfortable enough at a relatively elevated level, this chart suggests that its uptrend is waning. This need not be definitive of course. The possible pennant formation I talked about last week has played itself out and, while there’s little sign of a push higher yet, the index is at least holding on.

The index is currently just below the first 23.6% Fibonacci retracement of its climb from September 10’s lows. That comes in at 22501, just a whisker from current levels. Should that give way conclusively on a daily or weekly close basis then keep an eye on that uptrend channel.

If that goes too then focus will be on the next retracement level, that at 38.2% of the previous gain. It currently kicks in at 21887.6 and that level doesn’t appear to have a lot of chart validation as likely support.

Nikkei 225 Technical Analysis: Near-Term Uptrend Under Threat

That said the index may be hovering as it is for reasons more fundamental than technical. A crucial US labour-market report looms this week and behind it, next week, approaches the final Federal Reserve monetary conclave of 2017.

The US central bank is thought all-but certain to raise interest rates then, but that potential has been extremely well flagged and must be pretty well priced in to all markets now, including the Nikkei. The Fed’s prognosis for 2018 will matter far more, three rate hikes currently penciled in.

These fundamentals are likely to run all markets until the Fed’s mind is known.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX