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Nikkei 225 Technical Analysis:Torpid Chart Hides 2 Possibilities

Nikkei 225 Technical Analysis:Torpid Chart Hides 2 Possibilities

David Cottle, Analyst

Talking Points:

  • The Nikkei 225 looks calm, but possibly deceives
  • It could still be in the thrall of a shallow but notable uptrend
  • Or it could be settling into a consolidative range

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The Nikkei 225 looks stuck very much where it was when I last took a technical look at it a week ago.

The index has slipped back a little from the highs of early November, but the first Fibonacci retracement of its rise to those highs from the lows of September 8 seems to be largely holding off the sellers. That retracement comes in at 22431.9 and, as you can see from the chart below, the last four-weeks’ action has not strayed very far from that level.

From this position it is quite difficult to make a compelling diagnosis as to the Nikkei’s condition. With momentum indicators giving little away and moving averages in regular order it’s hard to say whether the index is ailing and getting ready to drop or fighting fit and looking for another leg higher.

One trend we might look at is the uptrend from October 19 which I alluded to in my last Nikkei piece. Picking such short-term trend lines will always be a matter of judgement but this uptrend channel has the virtue of being tested and confirmed on a few occasions. Since last week the index has poked below its lower boundary on an intra-day basis (on December 6)/ But when it comes to daily closing levels the channel still holds.

For as long as it does the index seems to be in a consolidation phase, albeit one with a bias. slightly higher. Of course the bulls would no doubt be comforted by another, more confident excursion above the 23,000 area. If the uptrend channel holds they will probably get one, indeed they’ll have to. However, it is notable that the channel has not faced an upside test since November 9 and much of the interim trading action has involved essentially bumping along the bottom of it.

With this in mind it might also be worth keeping an eye on the range below, bounded to the upside by 23,603.4 and by 21843.7 to the South.

In short, if our uptrend channel holds then cautious bullishness should pay off, but if this range breaks then it might well be a case of ‘look out below’ as more of that climb up from September’s lows will be put into question.

--- 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.