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Nikkei 225 Technical Analysis: Chart Pennant Suggests Further Falls

Nikkei 225 Technical Analysis: Chart Pennant Suggests Further Falls

David Cottle, Analyst
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Nikkei 225 Technical Analysis Talking Points:

  • The Japanese stock benchmark is at a key point on its monthly chart
  • A daily chart pennant suggests that support won’t hold
  • Bulls will probably need to retake 20,000

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The dawn of 2019 finds the Nikkei 225 flirting with a key support point on its monthly chart.

The base of an uptrend channel in place since June 2012 formed the intra-month low of December. However, given the decidedly ‘risk off appetite which has marked trade since the previous month, the bulls look as though they’ve got a job on their hands if they want to hold the line.

If they can’t then the chart suggests that the index will in the first case fall back to a support zone from November 2016-April 2017. It comes in between 18,937 and 18,772.

Nikkei 225 Chart (Monthly)

Unfortunately for those bulls, the daily chart doesn’t make much more reassuring reading. On that, the index seems to have built a clear ‘pennant’ formation. The requisite confluence of lower highs and higher lows is clearly visible in the last eight days’ trading action.

Nikkei 225 Chart (Daily)

The problem is that a pennant like this is usually seen as being a ‘continuation’ pattern. What that means is that the status quo ante is likely to resume once the pattern plays out, which would clearly mean a further move lower.

The first level of interest on the way down is likely to be the recent intraday low of 18,926.6. That was the intraday low of December 27, also the lowest point for the index since April 24, 2017. If this gives way then focus would probably settle on a support zone between there and 18,182, the latter being the low of April 2017.

To really convince, bulls will probably need to reclaim and hold the psychologically important 20,000 point relinquished in December for the first time since September 2017. If they show that sort of resolve then the current bearish momentum could pause, but there seems little sign of that so far.

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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!

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.