nikkei 225 minor potential toppish configuration below 19740 2693102017

Short-term (1 to 3 days) technical outlook

(Click to enlarge chart)

What happened earlier/yesterday

The Japan 225 Index (proxy for the Nikkei 225 futures) had continued to trade sideways between 19600 and 19740 (last Fri’s high) despite latest upbeat economic data such as retail sales and industrial production for April that managed to surpass expectations.

Key technical elements

• Despite its sideways movement and the recent release of the aforementioned rosy economic data, all is not so well on the technical analysis front as price action now has started to trace out an impending bearish “Head & Shoulders” configuration (as depicted by the pink boxes) with its neckline support at 19600.
• A “Head & Shoulders” chart formation tends to be bearish as it represents an impending change in direction from an up move (from 18 May 2017 low to 25 May 2017 as seen on the Index). Interestingly, this bearish configuration has formed within a medium-term descending trendline resistance (depicted in pink) that is in place since 10 May 2017 high (the 20000 medium-term pivotal resistance, click here for a recap).
• Based on intermarket analysis, the USD/JPY continues to exhibit short-term weakness below its key short-term resistance zone of 111.24/111.47. Given its directly correlation with the Nikkei 225, a further potential decline in USD/JPY is likely to translate to a similar decline in the Nikkei 225.
• The key short-term resistance stands at 19740 as defined by last Fri, 29 May high and the right shoulder of the aforementioned Head & Shoulders bearish configuration.

Key Levels (1 to 3 days)

Pivot (key resistance): 19740

Supports: 19600, 19500 & 19283

Next resistance: 19850

Conclusion

As long as the 19740 short-term pivotal resistance is not surpassed and a break below 19600 is likely to reinforce a further potential decline towards 19500 before 19283 (18 May 2017 low) in the first step.

However, a break above 19740 is likely to put the preferred bearish tone on hold to see a further push up to retest the descending trendline resistance at 19850.

Charts are from City Index Advantage TraderPro

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