Nikkei 225: Finding Short-Term Support Despite Bullish Over Extension

If you look at Nikkei 225 physical stock index closing price today, you would think that today is a strong bullish day, where prices closed just under 14,600 and gained 0.64% higher from Monday’s close. However, looking at Future prices, the picture can’t be more different. It is clear that prices actually took a sharp dive on today’s open, and price actually continue to dip towards the rising channel without reply from bulls. There doesn’t seem to be any strong fundamental reasons why prices were so bearish today, and suggest that the sell-off is linked to bullish over extension during Monday’s European and US session, with strong risk appetite driving Futures prices higher than it should. The continued sell-off experienced is a typical momentum play, where the revaluation of Futures to match the less bullish stocks allowed closet bears and speculators to continue driving prices lower.

Hourly Chart

From a technical perspective, some may simply regard today’s sell off as a lagging rebound from the Channel Top. Prices have since hit Channel Bottom, finding support just around the Senkou Span B (Kumo Bottom) and in line with Stochastic readings straddling at the border of Oversold region. This put bulls in a good position to climb higher during European/US hours, especially since we’ve just observed that Futures sensitivity to risk appetite is certainly much higher during off-market hours. However, given that risk appetite in European hours is found lacking (DAX -0.26%, FTSE +0.18%, Stoxx50 -0.43%), it is unlikely that price will be able to simply rebound from here to hit Channel Top. Even if Channel Bottom holds, it is possible that price will find resistance in the form of the consolidation zone from 14,580 – 15,650 which was in play on early Monday.

Monthly Chart

Longer term chart shows price clearing the important 14,450 line in the sand. Should price continue to maintain above this level, the highs closer to 18,400 will be achievable. However, as the candle has not yet closed, it may be too early to declare that current bullish setup is completed. Nonetheless, every day that price stay above 14,450 is another day in favor for the bulls, and we could see this long-term bullish pressure helping out short-term price action as well.

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