nikkei 225 further potential corrective decline after minor rebound 2692742017

Medium-term (1 to 3 weeks) technical outlook

(Click to enlarge charts)

What happened earlier/yesterday

The Japan 225 Index (proxy for the Nikkei 225 futures) had tumbled in yesterday’s U.S. session and broke below the 12700/600 medium-term pivotal support. In addition, the USD/JPY had also broken below the parallel 112.00 medium-term pivotal support. Our earlier bullish view for a last push up towards the 20200 risk level had been invalidated reinforced by the on-going political uncertainties in U.S. that could derail U.S. President Trump’s fiscal policies on tax cuts and infrastructure spending. Please click here for a recap.

Yesterday’s break of those aforementioned key pivotal support levels have open up scope for a deeper decline to retrace the multi-month rally of the Nikkei 225 that is in play since 19 June 2016 low.

Key technical elements

• The recent post French presidential election “risk on” rally has led to Index to stall at the 19900/20000 resistance (printed a high of 20025 on 09 May 2017) which is being defined by a confluence of elements. The medium-term swing high area of 01 December 2015, the exit target of the prior bullish breakout from the “basing formation” from 12 February 2016 to 24 June 2016.  Based on the Elliot Wave Principal, a minimum primary degree impulsive up move 5^th wave target derived from the 0.382 Fibonacci projection of the rally from 24 June 2016 low to 20 December 2016 high projected from the recent 17 April 2017 low.
• The daily RSI oscillator has exited from the overbought region and broke below its 1^st support. Right now, it still has room to fall further before it reaches the 2^nd support at around 41%. These observations suggest that medium-term downside momentum of price action remains intact.
• Yesterday price action has reintegrated back below the former 19700 range top from 20 December 2016 which suggests that the recent bullish breakout seen on 05 May 2017 is considered as failure (see daily chart).
• The next significant medium-term support now rest at 19100/120 which is defined by the former congestion range top of 24 March/28 March 2017 and the 50% Fibonacci retracement of recent rally from 17 April 2017 low to 09 May 2017 high (see daily & 4 hour charts).
• On the shorter-term (1 to 3 days), the Index may shape a minor rebound first after yesterday’s steep decline as the 4 hour Stochastic oscillator has reached an extreme oversold level.

Key Levels (1 to 3 weeks)

Intermediate resistance: 19700/770

Pivot (key resistance): 20000

Supports: 19420 & 19200/120

Next resistance: 20950 (0.618 Fibonacci projection from 24 June 2016 low)

Conclusion

Potential multi-week corrective decline in progress but the Index may see a minor rebound first towards 19700/700 intermediate resistance above 19420 before a new downleg materialises to target the next support at 19200/120.

On the other hand, a clearance above the 20000 medium-term pivotal resistance opens up scope to resume the primary degree up move towards the next resistance at 20950.

Charts are from City Index Advantage TraderPro

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