Nikkei 225 – Dodging the Evening Star

Nikkei 225 is unstoppable currently, closing on the final day of Jun with a 3.51% daily gain, closing the month at 13,677.32 with a 126.32 point gain from the month’s Open. This is a remarkable reversal considering that price was more than 800 points below June opening levels 2 weeks ago. If current month ended 2 weeks ago, it is likely that Nikkei 225 would be consigned to a huge wave of bearish reversal pressure with price action forming an Evening Star bearish reversal pattern with price trading below the 13,000 psychological level and below the 50.0% retracement (see Monthly Chart below). That unfortunately did not materialize for the bears, but even if price ended yesterday, bears would still have the excuse to proclaim that the Evening Star is still formed, as the closing price yesterday is still around 50 points lower than 3rd Jun opening price. With today’s last ditch rally, the monthly candle has changed from a bearish candle to a bullish one, which makes it hard for the case of an Evening Star to push forward. Technically, Nikkei is lower on a M/M basis (120 points lower than May’s close), but it will be much harder to justify it with current candle looking more like a Hammer bullish reversal candle.

Monthly Chart

From a technical perspective, the ability to fend off such a strong bearish setup puts price at a very good position to continue the incumbent bull trend that started since Nov 2012. This also affirms the consolidation range back in 2008 before the great capitulation. Now the question is whether this bullish reversal signal will take flight, and push price above the 61.8% Fib retracement and 14,450 consolidation ceiling. Should 14,450 gets broken, we could potentially see price accelerating up towards the 100.0 Fib retracement level, and coming out of the shadow from the 2007/8 Financial Crisis.

It is important to note that bears may still mount an unlikely comeback in July, similar to how bulls made their great escape in the final 2 weeks of June. Should price break below 13,000, doubts and fear may slip in once again to allow for a test of 50.0% Fib, and should that level be broken, it is likely that we could see a strong capitulation towards the original rally starting point as that would likely mean that Abenomics have failed.

Hourly Chart

Hourly Chart shows the continuation of yesterday’s breakout. Price found some resistance under 13,500 but made short work of it on the open of the Japanese stock market, with price breaking the resistance on the 1st hour of trade. Since then, there is no looking back with bulls reaching above June’s opening levels, and started to stop once they are satisfied with a job well done. This is interesting considering that bulls could have seized a more comprehensive victory by pushing another 100 points more, but instead they are contented with the current minor victory, which kinda goes to show their overall ambition. Hence this imply that there could be a slight risk that what we are seeing is simply an extended technical rebound, not a strong indicative of longer-term correction.

Whatever what we may believe in, perhaps the best way would be to see how price action pan out next week. Early direction next week may give us clues on where price may potentially go for the rest of the month.

More Links:
EUR/USD Technicals – Reduced risk of 1.30 breaking (for now)
Gold Technicals – Moving Back towards 1,200
US Market Roundup – Rally on Bad News again

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