Today is a bank holiday for Japan, but Futures remain volatile on a busy Monday. Prices dipped lower on open, hitting a day low of 14,257 during the first hour. Prices did recover subsequently, but nonetheless it is interesting that we started today bearishly when risk appetite was broadly more positive due to stronger than expected economic data from China over the weekend. This gave us a hint of what is to come later – where the recovery was capped by the 14,325 ceiling and confluence with descending trendline that has been in play since 31st October, with prices quickly descended lower, opening up 14,250 as the immediate bearish target.
However, the ability for price to break 14,250 is less clear, as Stochastic readings suggest that prices will most likely be Oversold when 14,250 is tagged, which adds strength to the support level. With price approaching the apex of the triangle during US trading hours, we could see risk sentiment during the period potentially sending price much higher on lower with a breakout scenario. With European and US stock futures all pointing higher right now, the likelihood of a bullish push during US session increases.
Monthly chart is also slightly bullish. Despite the gloomy start in November, price has recovered significantly, giving Nikkei 225 a bullish candle for now. This has resulted in Stochastic readings re-crossing Signal line to point higher, aiming for 80.0 level and potentially back within the Overbought region, which would translate to prices moving higher and potentially testing the 14,500 level once again. However, considering that a huge portion of current bullish momentum right now is based on speculative play on BOJ’s stimulus announcement in December, the likelihood of bearish pullback may be high. Market may end up over-extending themselves ala the latest FOMC announcement where speculators who thought that the Fed will be more dovish were wrong. Hence traders may wish to hold their horses and wait for further clarity especially since Nikkei 225 has been extremely volatile with huge monthly High/Low ranges without clear direction since May.
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