Nikkei 225 Technical Analysis Talking Points:
- February’s peaks continue to cap the Nikkei 225
- Still, investors are clearly happy to hold it up here
- The next few sessions could be very telling
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The Nikkei 225 is still struggling with its last significant peak, which continues to cap the market.
The Tokyo equity benchmark has broken out of the dominant uptrend channel which had contained trade since March 28 and was itself simply an acceleration of the bounce from the lows of March 25.
The troublesome peak is February 27’s intraday high of 22496. The index stalled around that level last week and the bulls have been unable to make any progress above it.
Indeed the index has traded resolutely around that level for the past five sessions or so.
Now, it’s equally clear that the market retains an appetite to hold stocks at these levels. The question is whether the index is consolidating here for another push higher, or preparing for another retreat. While it is obviously impossible to be certain, there are some hopefully bullish signs.
The index no longer looks overbought in any sense. Indeed recent day’s trade have seen its Relative Strength Index fall back into the comfort of 54 or so. Perhaps more interestingly, it looks as though a tentative pennant formation can be seen on the daily chart.
This intersection of respected up and down trends is usually seen as what’s known as a continuation pattern. That means that, once it plays out, the index should continue to behave as it did before the pattern evolved. For Nikkei bulls that’s good news as it means that gains may be set to resume.
However even if they do, and the index can durably surmount those February peaks, it will still face considerable challenged to progress. The road back to this year’s highs is barred by the steep falls seen in late January.
If bulls have the resolve to tackle those they haven’t shown it yet so, while there is reason to play for more upside, trading it will require discipline and plenty of protection below.
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--- Written by David Cottle, DailyFX Research
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