Talking Points:

  • The Nikkei remains mired over the medium term
  • But there seems to be a clear level below which the bears give up quickly
  • For as long as there is, an upside test should remain possible

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In one important respect the Nikkei 225’s technical outlook remains much as it was when I last took a look at it.

The Tokyo stock benchmark found support last week around 21117.8, which represents the 61.8% Fibonacci retracement of its long rise up to the highs of late January from the lows of September 2017.

Nikkei 225 Technical Analysis: Play For Gains Above Key Support

And for the moment at least that support endures. Indeed, the index has built a modest base there and bounced back up toward the 50% retracement level. That comes in at 21704.2. It was surrendered on February 9 and has yet to be reclaimed.

For all that the index remains in the center of a broad downward channel which has been in place since January 29 and which itself represents an acceleration of the retreat from 2018’s peaks.

While this channel remains very much the daily chart’s dominant feature, bulls may be able to hope for some near-term respite if not an immediate turnaround. For there seems to be a band of support between March 5’s intraday low of 20827.5 and February 9’s low of 20559.6 which the index seems to very quickly trade out of.

Nikkei 225 Technical Analysis: Play For Gains Above Key Support

February 9 was an odd trading day in any case, boasting a broad range but a very small difference between the opening and closing levels. Such candles are usually taken to indicate a period of indecision, making the days following them instructive as they show how that indecision played out. In this case bullish sentiment won the day, with subsequent trading sessions taking the index up to the last notable peak- that of February 25. Those gains have been all-but erased since, but that support band holds firm.

For as long as it does investors can probably expect another attempt at the downward channel’s upper boundary, which now comes in around the 22,000 level. There’s little to suggest that that would be much of a success however.

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--- Written by David Cottle, DailyFX Research

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