nikkei 225 daily outlook thurs 21 jan 2016 potential snap back rally in progress above 16350 support

(Click to enlarge charts)

What happened yesterday

The Japan 225 (proxy for the Nikkei 225) has shaped the expected last drop to test the 16000 key medium-term support and staged a sharp rebound as expected in the late U.S. session.

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

Key elements

• The Index has rebounded from the 16000 key medium-term support where we have determined this pivotal level in the start of this week where a potential mean reversion in price action is likely to occur after a steep decline since 18 December 2015 high (see our weekly outlook/strategyfor more details).
• Current price action is now coming close to an intermediate resistance at 16890 as defined by a Fibonacci cluster where the risk of a minor pull-back may occur.
• In conjunction, the hourly (short-term) Stochastic oscillator has reached its extreme overbought level which reinforces the risk of a potential pull-back in price action.
• The daily (medium-term) RSI oscillator still has room for further upside before reaching its resistance and 50% neutrality level. This observation suggests that the on-going push up in price action is unlikely to end at this juncture.

Key levels (1 to 3 days)

Pivot (key support): 16350

Resistance: 16890 & 17290

Next support: 16000

Conclusion

Below the 16890 intermediate resistance, the Index may see a minor pull-back holding above the 16350 short-term pivotal support before another potential push up to target the 19 January 2016 minor swing high at 17290.

However, a break below the 16350 pivotal support may negate the bullish tone for a slide to retest the key 16000 medium-term support.

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