Nikkei 225 Talking Points:

  • The Nikkei 225’s rally has faltered
  • In the process it has slipped below its uptrend channel
  • This needn’t be terrible, but it might be wise to wait

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Body The Nikkei 225 has this week marked a tentative bull failure at its previous significant high and, in the process, slipped below the uptrend channel, which has dominated proceedings since late March.

The Tokyo stock benchmark probed above that high of 22496 on Tuesday and even managed a single daily close above it on the same day.

However it has since slipped back below that level.

Nikkei 22 Technical Analysis: Let Current Wobble Play Out

And it seems to me that this is not an especially good time to buy in. The index may be consolidating after its recent gains. If so that would be only healthy given the quite-impressive rise we’ve seen in the last month or so.

However, that channel break reminds us at the very least that that channel’s upside remains quite a long way above the market. Indeed, it hasn’t faced a serious test since April 5. The uncommitted might now be well-advised to wait a few days to see what happens next.

If the Nikkei edges into a range between current levels and the first Fibonacci retracement of its recent rise then the ‘consolidation’ scenario looks likely with further gains likely once it ends. That retracement come sin at 22082.

However, should that level give way then we could be looking at a more serious correction, even if we don’t see anything close to a complete reversal. In that case, keep an eye on the second retracement level for support. It’s at 21740.

Note also that the index remains above its 20-, 50- and 100-day moving averages on the daily chart, a fact which might also argue that it has got just a little ahead of itself and should perhaps pause for breath.

To the upside, that February peak of 22496 sill offers the bulls their most obvious immediate target. If they can take it then the focus will move irresistibly to the year’s peaks above 24,000. However getting back up there would entail overcoming the steep falls seen in early February and there is as yet little sign of the bullish resolve necessary to accomplish that.

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--- Written by David Cottle, DailyFX Research

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