nikkei 225 daily outlook fri 26 feb 2016 mixed elements turn neutral between16350500 15940 179880201

(Click to enlarge charts)

What happened yesterday

The Japan 225 (proxy for the Nikkei 225 futures) has continued to push up in the U.S. session in line with the major U.S. stock indices. Interestingly, it is still capped below by the short-term pivotal resistance at 16350/500 as per highlighted in our yesterday’s daily technical outlook.

Please click on this link for a recap on our previous daily outlook/strategy.

Key elements

• The overnight push in price action has been stalled at the moment at the 16350/500 range top in place since 16 February 2016 high.
• The 16350/500 range top also confluences with the upper boundary (resistance) of a bearish descending channel in place since 18 December 2015 high.
• The 4 hour Stochastic oscillator has reached inched back up into its overbought region which suggests limited potential upside for the Index at this juncture.
• The first support to watch stands at 15940 (yesterday minor swing low seen in the European session follow by the significant short-term range support of 15600.
• From an intermarket perspective, the USDJPY is still evolving in a bullish dynamic since the bullish breakout of its former trendline resistance (in dotted green) from the 16 February 2015 high and the pair has managed to hold above the 112.55 which is defined by a confluence of ascending channel support and the former minor swing high of 25 February 2016. The USDJPY tends to have a direct correlationship with the Nikkei 225 index which implies that both of them is likely to move in a similar direction. Thus given that the short-term technical picture is bullish for USDJPY, it will be though for the Index to shape a drop below its 16350/500 range top.

Key levels (1 to 3 days)

Resistances: 16350/500 & 17100

Supports: 15940 & 15600

Conclusion

Even though, the Index is still trading below its 16350/500 short-term range top but technical elements are mixed from an intermarket perspective (USDJPY).

Therefore, our initial conviction for a drop back towards the short-term range support at 15600 has been lowered. We turn neutral in short-term at this juncture with the key levels to watch at 16350/500 and 15940. Only a break below 15940 support is likely to trigger the drop towards the 15600 range support.

On the other hand, a clearance above 16350/500 may open up scope for a bullish breakout towards the 17100 resistance in the first step.

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