Nikkei 225: Highly Volatile Around 13,000

Nikkei 225 continued to swing wildly above and under the key 13,000 figure. Today is no exception, with Futures trading from a high of 13,280 to a low of 12,870 by the time the Tokyo Stock Exchange stopped trading. During the day, price did try to break above the 13,000 level once more, and looked likely to have succeeded only to see the final hour of Tokyo trading sending price sharply lower below 13,000 once more. Luckily for the bulls, price failed to break below the moderately ascending trendline and is currently pushing higher seeking 13,000 once more.

It is worth noting that the decline in Nikkei is against the grain of other Asian Stock indices – Singapore’s STI gained 0.54%, while Hong Kong’s Hang Seng Index grew 2.43%. Even geographic neighbor Korea had a modest day, closing at +0.16%. The beleaguered Shanghai Composite Index that took a recent beating due to recent Chinese rate spike did moderately well considering recent setbacks, closing at 0.06% higher. Hence Nikkei 225 stood out like a sore thumb compared to the rest of the Asian indexes, and suggest that the decline has nothing to do with the situation in China. Looking at Japan economic calendar, there isn’t anything that was newsworthy either, with the economic docket empty. This implies that today’s movement isn’t fundamentally related, but probably due to speculative/bearish sentiments driving price lower.

Hourly Chart

This should automatically imply that the bears are extremely strong, but price is not really pushing lower hard enough. The mildly rising trendline suggest that bulls are not as weak as we think, and current Stochastic readings suggest that a bull cycle may be in play soon (if it’s not already in play currently) with readings flattening just under the 20.0 mark. Without Stoch/Signal lines breaking 20.0 towards the upside, a proper bullish signal will not be formulated, and this still leave the room for current bearish cycle to continue. That being said, it is highly unlikely that price may be able to break below Jun 21st low as readings are already within the Oversold region with not much buffer space to head lower.

Weekly Chart

Weekly Chart shows price retracing the gains made last week. We’re currently trading below the 50.0% Fib retracement line, which allows for another test of 61.8% Fib which has failed twice in the past month. Stochastic readings suggest that there are still yet space for price to head lower, which is favorable for a break of the 61.8% Fib, but a break of 76.8% may be overstretching without any sort of interim bullish correction.

Fundamentally, nothing has changed for Japan. Confidence in BOJ remains low – which kind of explains the counter-trend reaction of Nikkei 225 versus the rest of the Asian markets. Unfortunately, BOJ isn’t doing anything other than sprouting bullish rhetoric time and time again. This method did not work last month, and will certainly not work in a market that is highly bearish and disappointed with Central Banks right now (Blame Bernanke). That being said, it will be good to keep a close eye on current short-term volatility. Price should preferably break below recent lows in order to ascertain that bears are ready to embark on the next leg of bearish extension. With the high volatility surrounding 13,000, traders need to differentiate between a genuine bearish move versus rocky whipsaw action.

More Links:
US Market Roundup – Better Data not translating to Higher Price
EUR/USD Technicals – 1.315 and 38.2% Fib Remains
USD/SGD – Unmoved by stronger Industrial Production numbers

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.