Bulls fought valiantly yesterday, sending Nikkei 225 higher to 13,904 (+1.78%) in a bit to reverse current monthly candle’s bearishness. Price was still short of clearing the 14,000/61.8% Fib Retracement (see Monthly Chart below), but the hope was that bulls would be able to clock in another day of gains, and achieve a last gasp save to bring bias back to the bullish side. However, that didn’t happen, and price actually tanked heavily today. The underlying stock index lost 1.45% today, just 6 points shy of giving up the entirety of Tuesday’s gains. The decline bring us back to the negative red zone, marking July from a gaining to a loss making month.
From here, we can tell that bears are extremely strong, and this is the exact opposite of June, in which the final trading day saw bulls converting a loss making month into a gaining one. If history is to repeat itself again, we could see current bearish momentum gaining early August to send price towards 13,000 and potentially below the 50.0% Fib retracement. Whether price will be able to continue staying low is a huge question mark, as the possibility of yet another long-tailed hammer pattern forming remains due to the uncertainty surrounding Abenomics and BOJ stimulus. However, should price does manage to stay below 13,000 and preferably below 50.0% Fib in the month of August, we could be seeing stronger bearish correction towards the multi-year consolidation zone back between 2009 – 2012.
Short-term technicals support the notion of continued bearish pressure. Yesterday’s rally only succeeded in moving price back into the Kumo and was kept underneath the 13,830 soft resistance. Today’s trade saw price trying to break the same 13,830 level once more but failed, and instead traded lower and breaking the Kumo – resulting in a bearish breakout which happened just before the close of Tokyo stock exchange. This makes the last ditch efforts of bears even more remarkable, as they literally did it in the eleventh hour, with very little time to spare. Futures prices which is still trading has since extended the Kumo breakout, and if prices stay around current levels or perhaps even lower, the Nikkei 225 underlying stock prices will almost certainly open with a gap lower, starting August in the red zone.
The only saving grace for Nikkei 225 would be the US GDP and FOMC decision today. If both data support a broad risk appetite trend, there is the off chance that Nikkei 225 may actually push higher on the back of stronger bullish sentiment across the globe. However, should price continue to dip lower even in such a scenario, it will be a strong testament to the strength of bears and add as further confirmation that August will be a strong bearish month.
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