Is this the bearish signal that we’ve been waiting for? Today was the last day of August and we did not see any last ditch heroics or any goal-line saves by the bulls unlike the past 2 months. Even though the current Monthly candle has yet closed (as this is based on US EDT), the underlying Tokyo Stock Exchange has shut down for the month. Nikkei 225 Futures prices may still move from now till the end of US trading tonight, but it is unlikely that last minute heroics can be found from electronic Futures traders, considering that the last ditch attempts to clear key resistance levels in the past 2 months were done during the final 1-2 hours of Tokyo trade. Furthermore, the distance that we need to fill this time round is around 150 points higher at 13,500 at the very minimum, which is the opening levels of June. And that is already being generous, as price should ideally trade above the 13,868 level (July Close) in order to prevent current candle from being a bearish engulfing candle, which can be interpreted as a confirmed bearish rejection of the 61.8% Fib retracement. Ultimately, price will need to clear the 61.8% Fib in order to put to bed all possibilities of a bearish push in September.
Stochastic readings agrees with a bearish outlook, with readings pushing below the 80.0 mark signalling that we’re in a bearish cycle. 1st level of target would be the 50.0% Fib, and if price manage to trade below June lows, the chances of hitting 38.2% Fib increases.
Daily Chart agrees as well with prices aiming for the 12,550 support, following the bearish rejection of the Overhead Ichimoku back on 26th August. However, Stoch readings on Daily suggest that breaking 12,550 based on current bearish momentum may be a little bit harder considering that readings are close to Oversold region already. It is possible some short-term rebound on 12,550 may be possible, bringing us to 13,000 back again should that happens.
Fundamentally, we have good reasons why Japanese stocks may move lower in September. First off, September is historically the worst month for stocks, and with Fed tapering event looming, we could see broad risk aversion happening on a global scale. Furthermore, there is a high chance that Japan will introduce a sales tax hike soon, with Economic Minster Amari speaking on Saturday on the progress of the Tax Panel. If Finance Minister Aso and Amari have been truthful in their recent statements, it seems that most Ministers are seeing the sales tax as a matter of “when” and not “if”.
It is reasonable to believe that a hike of sales tax is good for Japan’s long-term economic health, as keeping the country’s coffers healthy is important and allow BOJ to continue financing stimulus in the long-run. However, it is likely that short-term pressure will definitely be down, as the immediate impact would be a slight decline in consumption rates and profits for corporations. Therefore, the short-term bearish scenario remains valid.