Nikkei 225 Technical: Overstretched rally

  • Nikkei 225 has hit a 33-year high with a 2023 YTD return of +29%.
  • Its 3-month up move has reached overstretched condition, more than two standard deviations above its 20-day moving average for three consecutive days.
  • At the risk of a corrective pull-back with short-term bullish momentum dissipating.

Fig 1:  Japan 225 short-term trend as of 15 Jun 2023 (Source: TradingView, click to enlarge chart)

Since its 16 March 2023 low, the Japanese benchmark cash stock index, Nikkei 225 has staged a magnificent rally of 26.7% based on the current, 15 June intraday level of 33,720 at this time of the writing, a 33-year high and notched a 2023 year-to-date return of +29%, one of the top performing major stock indices (second to the US Nasdaq 100 at 37% YTD).

Rally hit overstretched condition

The 3-month of medium-term up move has reached an overstretched condition where its price actions have traded beyond two standard deviations above its 20-day moving average for three consecutive days.

The Japan 225 (a proxy of the Nikkei 225 futures) has almost reached a key short-term resistance of 33,640, defined by the upper boundary of a minor ascending channel in place since the 11 May 20023 low and a Fibonacci extension cluster.

Exhaustion elements surfaced, at risk of minor corrective decline

In addition, several bullish exhaustion elements have emerged, and the daily price action of 14 June 2023 has formed a “Spinning Top” Japanese candlestick pattern. In the shorter-term frame, the 1-hour RSI oscillator has formed a bearish divergence signal after it reached a 5-day high overbought level of 80.36 on 13 June 2023.

Watch the 33,640 key short-term pivotal resistance with near-term support at 32,700 and a break below it exposes the next support at 31,900 (the 13-day moving average & the lower boundary of the minor ascending channel). On the flip side, a clearance above 33,640 negates the bearish tone to see the next resistances coming in at 34,200 and 35,000.

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Kelvin Wong

Kelvin Wong

Senior Market Analyst, Asia Pacific at OANDA
Based in Singapore, Kelvin Wong is a well-established senior global macro strategist with over 15 years of experience trading and providing market research on foreign exchange, stock markets, and commodities. Passionate about connecting the dots in the financial markets and sharing perspectives around trading and investment, Kelvin Wong is an expert in using a unique combination of fundamental and technical analyses, specializing in Elliott Wave and fund flow positioning, to pinpoint key reversal levels in the financial markets. In addition, over the last ten years, Kelvin has conducted numerous market outlook and trading-related seminars, as well as technical analysis training courses, for thousands of retail traders.