Nikkei 225: Retesting 14,350 on trendline rebound

Nikkei 225 traded lower today, with price unable to hold onto Friday gains, pushing below pre-NFP levels. This is a strong bearish signal, especially since there is no strong fundamental news released during Asian session that could have sparked this decline, suggesting that the bearish push has a strong element of technical/speculative bias. Fortunately for the bulls, price managed to find support via the rising trendline and the confluence with the ceiling back on 4th July, and price has been trading steadily higher back towards the 14,350 ceiling back on 2nd/3rd July, and support back on late 5th July.

Hourly Chart

The rebound from the trendline coincides with the influx of risk appetite during European hours, which saw European bourses trading higher. From the perspective of Futures prices alone, stochastic indicator show that price is recovering nicely with Stoch/Signal line pointing higher after entering Oversold region briefly. This suggest that a bullish cycle is on the way, and should 14,350 gets broken convincingly, a move towards 14,450 may be possible at least where Futures are concerned. However, it is important to note that the physical stock traders have been noticeably more bearish than the Futures traders, with Future prices tending to overextend themselves only to see bearish correction when the underlying stock market opens. Hence, even if we manage to trade above the 14,350 level during off-market hours, do not simply assume that a bullish move towards 14,500 will be likely tomorrow, as the physical traders may not simply allow price to gap up above 14,350 on open.

Monthly Chart

Monthly Chart shows price maintaining above the 61.8% Fib, which is a bullish sign. However, the inability to stay above the 14,450 round figure and significant support/resistance in the past is disappointing, as a break of 14,450 would have opened up stronger bullish momentum. Nonetheless, if July ends right now, we can still consider current bias as bullish, as it still fulfills the bullish extension setup of last month’s Hammer candlestick.

With confidence in BOJ starting to get back, and economic numbers looking healthier than before, Nikkei 225 is in a good position to make a strong comeback towards 2013 highs once more. However, should price continue to languish below 14,450, coupled with negativity surrounding physical stock traders, it will not be surprising to see price trading below to test the 61.8% Fib and perhaps even 13,000 again in 2H 2013.

More Links:
NZD/USD Technicals – Holding Strong above 0.77
USD/JPY Technicals – Finding Support Above 101.0
US Market Roundup – Assessing the NFP Aftermath

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