Nikkei 225 – Bearish under 14,500

It seems that the Universe does not want Nikkei 225 to rally. Despite closing above the key 14,500 resistance for the month of September, prices wasn’t able to push much higher. First off, the House of Representative Bill happened – the bill which wanted to push back Obamacare for a full year as part of the deal to fund the Government. Nikkei 225 gaped lower on Monday in line with the rest of the markets, but still managed to climb up higher during US session on Monday when market has decided that the economy will still be fine even if US Government shutdown partially (whether this is a correct belief remains a separate discussion).

However, before Nikkei 225 could fill back Monday’s gap, the hike in sales tax was announced, sending stock prices lower once more as there wasn’t any promise of further stimulus. Instead, the only promise Shinzo Abe made was that he’ll look into MORE tax hikes if the economy allows. Hence it is no surprise that prices dipped lower once again during Asian hours which spilled over to European session, with mild “risk on” sentiment during US session pushing prices up once again.

Hourly Chart

For today, there isn’t anything on the newswires but that did not stop Nikkei 225 from falling from a high of 14,600 to just under 14,200 in the first 5 hours of trade. This decline may be due to the falling of USD/JPY, but even then the degree of the fall is disproportionate, suggesting that Nikkei 225 is actually inherently much more bearish, and perhaps may be the one that is dragging USD/JPY down instead. Furthermore, this decline is going against most of the other Asian equities – Hang Seng Index is actually higher at +1.08%, while Australia has gained 0.22%. Closest neighbor Kospi is also higher at +0.31%, highlighting the strong underlying bearishness of Nikkei 225.

The question is why is Nikkei 225 so bearish right now? A possible answer is that prices may be bearish because Japanese traders have simply given up after the universe have conspired to send prices underneath 14,500 – the level which they tried so hard to push above back in September. Speaking of technicals, today’s decline also started from the failure of bulls to break the descending Channel Top, hence it could be a combination of these 2 reasons which drove prices down towards Channel Bottom.

The good news for bulls is that a corrective move may be coming soon. As today’s decline is not fundamentally driven but hinges more on the build up of bearish sentiment, it is not surprising to see prices not packing enough punch to break the Channel Bottom. Stochastic readings agrees with readings entering the Oversold region with Stoch curve tapering flatter. Hence we could see some reprieve for bulls, with immediate bullish target probably around 14,400 and confluence with Channel Top. Interestingly, this can be possibly achieved during US session, in line with the price action seen in the past 2 days where bullish recovery has been spotted during similar time period.

Monthly Chart

Long term chart is bearish though, with a move towards 14,000 and confluence with 61.8% Fib retracement made possible as long as price trade below 14,500. However, given that we’ve seen long candle wicks in the past few months, do not automatically assume that this bearish start to October will make the entire month bearish. Interestingly, Stochastic curve is still pointing higher, suggesting that the “short-term” (relatively) momentum is still on the bullish front. Hence 14,000 holding with a push back above 14,500 cannot be ruled out.

Friday’s BOJ event risk may help to bring the above scenario to fruition. As the Tax Advisory panel has mentioned that additional stimulus should be warranted in order to net out the negative impact of the rate hike, it is possible that Kuroda may actually announce additional stimulus package this Friday. This may be the boost that bulls need to send prices back above 14,500 and from there additional technical bulls may add onto the bullish sentiment to send Nikkei 225 much higher. However, the downside risks remain as well. Should Kuroda maintain silence once again, the already bearish sentiment may grow bigger and threaten 14,000 if we’re still above it when that happens.

More Links:
GBP/USD – Eases back under 2013 high around 1.6250
AUD/USD – Moves well off Support at 0.93 back to 0.94
EUR/USD – Flirts with Resistance at 1.3550 then Eases Back Under

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