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Nikkei 225 Technical Analysis: Retreat Contained, Next Move Key

Nikkei 225 Technical Analysis: Retreat Contained, Next Move Key

2018-05-24 01:56:00
David Cottle, Analyst
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NIKKEI 225 TECHNICAL ANALYSIS: TALKING POINTS:

  • The Nikkei 225 has slipped back a little this week
  • Global risk appetite has probably had much to do with the slide
  • However key support is now very close

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The Nikkei 225 has taken a sharp downturn this week, in common with some other global bourses The slide

‘s fundamental roots are in worries about US/China trade and increased political risk in the European Union, which has come unhelpfully at a time when the economic data are softening too.

Technically speaking, the Japanese equity benchmark has now dropped out of the downtrend channel which has persisted since April 6 on its daily chart and was itself merely a continuation of the rise from late-

March lows. So far, falls have been limited to the previous significant high, February 27’s intraday peak of 22,495, which seems to be acting as support. It is under quite severe pressure though.

Nikkei 225, Daily Chart

Should it give way, on a daily or weekly closing basis, investors can look for support quite close to current levels, at 22367. That is where the first. 23.6% Fibonacci retracement of the rise since late March comes in. Below that, the focus would be on 38.2% retracement, which would be seen on any fall to 21970.5. A fall of that magnitude, however, might suggest that something more than a consolidation is in hand and that the index may still have further to fall.

Nikkei 225, With Fibonacci Retracement Levels Shown

For the moment, the bullish-consolidation argument still looks quite plausible, with the index’s momentum slipping very sharply from the close-to overbought levels of a few days ago.

The bulls shouldn’t leave matters as they for long though. The year’s (January) peaks remain some way off and, before they can be attempted once more, then the steep fall seen in late January and early February will have to be made back.

Nikkei 225, Daily Chart

Bulls will need to get a new uptrend back on track if they are to have a stab at that task.

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--- Written by David Cottle, DailyFX Research

Follow David on Twitter@DavidCottleFX or use the Comments section below to get in touch!

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