After dodging a potential bearish setup on the final day of June, Nikkei 225 has done well, with the stock index closing 4.63% higher on a W/W basis, amounting to an increase of more than 600 points. This affirms the reversal which the bullish “Hammer” candlestick suggested, and negates the bearish pressure which has been exerting on prices ever since the end of May with the formation of a “Shooting Star” bearish reversal pattern. This rally is a reflection of the return of confidence in BOJ and Abenomics, as latest economic data seem to suggest that Japanese economy is slowly getting back on the track of recovery, and not just a mere slowdown of decline. Furthermore, there is a component of speculative behavior on top of the technical setup – foreign purchase of Japanese stocks have increased significantly the past week, stemming the outflow of funds from Japan and helping to prop up prices. This increase in foreign interest could be due to outflow of funds from US (from Bond Funds, Gold ETFs and even equities funds as investors would like to abandon the Fed who has shown their unwillingness for continued QE vs the ECB and BOJ, who are still continuing with their stimulus plan).
Currently, even though the Tokyo Exchange is closed, Futures are still trading hot, with prices approaching the 14,450 ceiling. Price has already cleared the 61.8% Fib earlier this week, and should prices break 14,450 by the end of the week may help to inspire further bullish acceleration next Monday. Trading above 14,450 opens up a long term bullish target of 18,430. But in order to reach there, price would need to clear the previous 2013 around 16,000, which happens to be the confluence with the support found in 2007.
Short-term chart suggest that a bullish breakout may occur soon, with price testing the intersection between the Rising Channel Top and the 3rd Jul Swing High (peak not seen in stock prices as this was achieved during off-market hours). If price break higher, the likelihood for a test for 14,450 increases and the momentum that arises from the breakout scenario may help make the longer-term resistance easier to overcome considering the close proximity between the 2 significant resistance (less than 50 points). Stochastic readings suggest that further movement higher is possible, with readings just entering the Overbought region after invalidating a bear cycle signal which was formed during early Asian session. Even though based on Stochastic levels, a break of 14,450 seems unlikely without any pullbacks along the way, but it is still possible that pullbacks from 14,450 finding support from the rising trendline, which will allow price to rebound higher or perhaps straddle higher along the Channel Top.
With NFP coming during US session later, we could see Nikkei 225 Futures pushing much higher or lower after the event. It is important to note that this may not fully represent the bullishness/bearishness of the underlying stock traders. Hence even if price break 14,450 after NFP has been released, there remain the chance that stock traders may deem it not worthy of such bullish reaction, resulting in a massive correction when the Tokyo Exchange opens again on Monday. A true bullish scenario that may take us longer and higher will preferably see Nikkei 225 Futures clearing 14,450 by tonight, with underlying stock gaping above 14,450 on open.