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Talking Points:

  • The Nikkei 225’s key medium-term uptrend channel is still holding firm
  • Indeed, it may have seen further validation in the past week
  • Despite recent vigor the index is showing no sign of exhaustion

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In some respects little has changed for the Nikkei 225 since my last technical look. That’s a fact which, at face value ought to be a comfortable one for the bulls.

The Tokyo stock benchmark remains in the robust uptrend channel which has contained trade since October 27 last year. That channel encompasses this week’s rise to new 26-year highs. Incidentally that rise seems to have validated a channel top which, without it, might have looked a little spurious.

November 9’s intraday high used to mark not only that channel top but the only foray toward it since the formation was initiated. However, January’s peaks have so far respected the uptrend from that November 9 top, making it look a whole lot more valid.

Nikkei 225 Technical Analysis: Keep Playing Key Upside Channel

As you can see the index has remained within the channel even as it has risen and, as you can also see, for the moment at least it remains very close to the channel top. The base lies a comforting 1,200 points to the South, hasn’t faced a serious test since December 6 which, in any case, the bulls with aplomb.

Admittedly the index is tending slightly towards the overbought area in terms of its momentum and relative strength. However, after a run of such solid gains it was always going to, and in fact its Relative Strength Index remains some way below the 70 level which usually sets alarm bells ringing. It’s now a quite relaxed-looking 55. The simple moving averages are in chronological order too.

All up even at 26-year highs this doesn’t look obviously like and index you’d be terribly ill-advised to buy, and it’s likely to keep looking quite good for as long as this broad uptrend looks so unthreatened.

Of course the index could probably use a break for consolidation after such a nice run up. But it may well already be getting one. The Nikkei has been stuck in quite a narrowe range since early January, even the top of that range has kept the overall channel formation in play.

Nikkei 225 Technical Analysis: Keep Playing Key Upside Channel

It’s notable perhaps that even the 23,522 base of this range is some way above what would be the first Fibonacci retracement of the climb up from late-August’s lows. That retracement comes in now at 22,973.9- probably the level to watch if we see a downside break.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter:@DavidCottleFX