nikkei 225 16500 medium term support challenged but not enough elements to turn outright bearish 183

Daily Outlook, Thurs 15 Sep 2016

(Click to enlarge charts)

What happened earlier/yesterday

The Japan 225 Index (proxy for the Nikkei 225 futures) has broken below the 16500 medium-term pivotal support today on an intraday basis.

Our preferred recovery scenario is now being put on hold but after a close examination of its technical elements and cross assets relationship, we are not validating a bearish case for the Index at this juncture.

Key elements

• Even though the Index is now challenging the lower boundary of the medium-term ascending channel in place since  24 June 2016 low but the corresponding daily RSI oscillator is right on its pull-back support (depicted in dotted green).
• Interestingly, the current intraday low of 16345 has managed to stall at the 16340 recent medium-term swing low of 26 August 2016 which also confluences with a Fibonacci cluster (see daily chart)
• The hourly (short-term) Stochastic oscillator has started to flash a bullish divergence signal at its oversold region which suggests that the downside momentum of the current decline has abated.
• From an intermarket analysis perspective, the USD/JPY is still holding above its intermediate term ascending trendline support at 101.75/40. Given that the movement of the USD/JPY and the Nikkei 225 are directly correlated, there is a high probability that the current bearish tone seen in the Nikkei 225 will be halted at this juncture.
• The intermediate resistance of the Index stands at 16530 which is defined by  the former minor swing lows area of 12/14 September 2016 and the 23.6% Fibonacci retracement of the current down move from 05 September 2016 high to the current intraday low of 16345.

Key levels (1 to 3 days)

Supports: 16340 & 16000

Resistances: 16530 & 16900

Conclusion

16500 medium-term pivotal support is being challenged but elements are not advocating for a direct drop at this juncture. Turn neutral and only a break above the 16530 intermediate resistance is likely to revive the short-term bulls for a potential push up to target the next resistance at 16900.

On the flipside, a break below the 16340 support is likely to trigger a further drop towards the next support at 16000.

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