Nikkei 225 continues to be highly volatile, swinging wildly both higher and and lower around 13,000 pivot. After pushing higher during US hours, price dipped lower on Japan open when the underlying stock index failed to gap higher than 13,000, with risk-off sentiment quickly setting in with traders realizing that bulls have overextended themselves by around 70 points, with the bearish correction spilling over to the underlying stock market, pushing stock prices down below 12,900 within the 1st hour of trade. Price did manage to recover and push up higher as broad risk appetite swept across Asia, with Hang Seng gaining 0.50%, STI 0.76%, and Australia’s ASX +1.68% .
This broad risk appetite was brought about ironically by a surprising downward revision of US Q1 GDP, which pushed US stocks higher instead of lower. This counter-intuitive market reaction was attributed to market believing that a worsening US economy would deter Bernanke from pulling the plug out of the most important stock driver – QE stimulus. This sets the market for potential high downside risks in the future either via bubbling or disappointment should Bernanke carry out his QE3 ender timeline. (Hint: Bernanke’s term as Fed’s Chairman ends in Jan 2014, not much time left if he intends to taper QE before he steps down)
From a technical basis, price is Nikkei 225 has broken away from the ceiling that has kept rallies in check this week. However, precautions should be taken to ensure that current breakout does not result in a “fakeout”, considering that Stoch readings are currently pointing lower and that price is still trading below the previous day high. Preferably, price would need to clear the swing high 2 candles before which happens to be the swing high back on 20th Jun to open the possibility of a retest of 13,450/13,500. Failure to do so will continue to keep pressure on the ceiling and potentially send price back towards 13,000 if it breaks.
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