Nikkei 225 Technicals – Shooting Star Seen on Monthly

Monthly Chart

Is this the correction we’ve been looking for? Despite Abenomics entering into full swing right now, economic data hasn’t been the most encouraging. Stocks have came down considerably from May highs, and is currently trading below the 61.8% Fib. If June continues to be bearish, the Evening Star bearish reversal pattern will be completed, and may usher in new bearish impetus for the 2nd half of 2013. Bearish acceleration may even be higher if price manage to push below the 50.0 level while the Evening Star is formed. Below the 50.0%, the 38.2% fib and confluence with 2010 April highs will be critical as it is the last vestige for current bull trend to remain intact.

Fundamentally, should stocks be this high? Earnings of N225 component stocks have increased, but a large part of the increased is attributed to the declining Yen, which improves the returns of exports. Actual demand of the product offerings of the firms remain weak, with Industrial Production remaining negative on a Y/Y basis. Furthermore, consumer consumption rate has not been growing as much as stocks, which shows that stocks are indeed being overvalued right now. Nonetheless, sentiment is highly unpredictable, and traders could still easily buy into current dip if euphoria remains high. Therefore traders are always recommended to assess their risk tolerance before entering this reversal move, as the high tail from previous month would mean that relevant stop losses will be much further away than usual, with increased volatility to be expected.

More Links:
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EUR/USD – Surges Through 1.30 and Settles

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