Nikkei 225 has been pushing lower ever since rumors of BOJ stimulus package has been revealed, with market seemingly disappointed with the rumored package size of 5.4 – 5.6 Trillion Yen (~$52 Billion) which is meant to offset the economic damage brought about by the hike in sales tax. The fall in USD/JPY and the overall risk aversion in global equities (as seen via the 4 day drop in S&P 500) fueled bearish pressure, sending Nikkei 225 to a low of 15,135 this week.
Currently price is finding some support from Channel Bottom, which opens up the potential of a move towards Channel Top. However, a “break away gap” (where Wednesday Tokyo Open prices is significantly lower than the lows of Tuesday’s low during Tokyo trading hours) has been confirmed as top side action today was unable to “fill” the gap, which will add further bearish pressure in tomorrow’s trade. Hence, do not be surprised if prices manage to trade lower without touching Channel Top, especially since resistance can be found below Channel Top between 15,280 – 15,300.
Long-term bearish target would be 14,500 and 14,000 but it is obvious that price will have almost zero chance of hitting these 2 targets in December even if BOJ reveals the actual disappointing stimulus package. Also, the impact of a QE Taper/No QE Taper on Nikkei 225 isn’t entirely clear. Even in the event of a Fed Taper, we could see USD strength pulling USD/JPY higher and hence encourage Nikkei 225 to go up even though global risk appetite may be low. Also, there is no telling whether market will continue to believe in BOJ and hence allow bulls to recover even if prices dipped lower post BOJ disappointment in the short-term. We’ve seen prices somehow defy gravity and break 14,500 last month and pull off the same stunt back in September with regards to 14,000 when bearish pressure has been immense. Therefore, count bulls out at your own peril especially given the history of long-tail candles as seen between May to August.
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