Nikkei 225 Technicals – Abenomics losing to Italian Job

The spectacular collapse of N225 Futures during US trading hours is for all to see. Prices dipped close to 600 points, falling from a high of 11,691 to a low of 11,111 after fear crept into the market after Italian elections results were announced.

There wasn't a majority Government formed, with votes going fairly equally to 3 parties. This would mean that either the 3 parties form a coalition Government which will be highly unstable, or there will be fresh elections once more. Even if there are new elections, it is also not guaranteed that we wouldn't face the same situation again.

Hourly Chart

Intraday Swing Traders would have made a killing if they played the decline below 11,570 (previous swing high on 20th Feb) and close their short trades around 11,200 (swing low on 22th Feb). However, very few traders would have anticipated the pullback during Asian hour will be so huge, pushing close to 400 points higher from the lows.

Fundamentally, this wrestle between bulls and bears is a sign of struggle between global bears (which pushed US stocks lower last week after Fed minutes, and now the Italian election saga), and the Abenomics believers, who will look for bargain buys at low levels as proven by this morning's revival. However, it seems that Abenomics fans are losing out to the global bears, with a Shooting Star candlestick pattern just just below the 11,500 round number, and more importantly around the previous swing high mentioned above.

Pressure is on the downside, with Stochastic readings also forming a top currently. Bulls may find solace that the previous 2 times Stoch readings peaked near current levels, the sell signals failed with price quickly rallying after that. However there is no denying that price did move lower on both occasions, which means bears could still have some profit distance to go, which will encourage bears to not close out their positions right here right now.

Daily Chart

Daily Chart is less damning on the bulls. Though price has fallen below the rising trendline, we have yet to witness a catastrophic collapse. Instead, price actually rallied higher along the trendline. The recent sell-off with the long-tail shows the resilience of support around 11,000 mark, at the same time potentially hinting that the consolidation between 11,000 - 11,500 is still in play. If that is the case, perhaps the mixture of global bears vs Abenomics supporters will simply result in sideways trading, which will delight short-term swing traders more.

More Links:
GBP / USD – A Reprieve at 1.51
AUD / USD – Experiencing Support Around 1.0250
EUR / USD – Falls Heavily to Within Reach of 1.30

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.

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