nikkei 225 daily outlook wed 17 feb 2016 no conviction yet to see the start of another upleg below 1

(Click to enlarge chart)

What happened yesterday

The Japan 225 (proxy for the Nikkei 225 futures) has staged the expected drop just below the pre-defined resistance zone of 16500/600 (printed a high of 16342).  It has met our downside target of 15750 in the U.S. session (printed a low 15749).

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

Key elements

• After it hit a low of 15749, the Index has staged a recovery throughout the U.S. session and made a follow through earlier this morning on yesterday’s gain. It printed a high of 16214 which recorded a rally of 2.95%.
• Despite this “strong” gain seen in price action, technical elements are not convincing enough for us to turn bullish at this juncture yet. The hourly (short-term) Stochastic oscillator has flashed a bearish divergence signal at its overbought level which suggests that upside momentum of yesterday’s rally has started to abate.
• Based on the Elliot Wave Principal, the down move seen in yesterday’s price action has traced out a clear bearish impulsive five waves motion from 16342 high which implies that rally from 15749 low is likely to be corrective (countertrend) in nature and another set of bearish five waves motion is likely to unfold next to complete the corrective b wave of a minor degree (short-term).
• The next significant near term support rests at 15420/360 which is defined by the former congestion zone of  10 February to 12 February 2016 and the 61.8% Fibonacci retracement of the recent rally from 12 February 2016 low to yesterday’s high of 16342.

Key levels (1 to 3 days)

Pivot (key resistance):  16340/500

Support: 15420/360

Next resistance: 16890

Conclusion

Based on the aforementioned elements, we are not convinced for the Index to see the start of another upleg of the countertrend rally in place since 12 February 2016 low at this juncture. As long as the 16340/500 short-term pivotal resistance is not surpassed, the Index is likely to see another potential drop towards the 15420/360.

Only a clearance above the 16340/500 short-term pivotal resistance is likely to turn the tide back to the bulls to see a potential rally to target the 16890 resistance (upper boundary of the descending channel in place since 18 December 2015 high) in the first step.

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this email, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs. All queries regarding the contents of this material are to be directed to City Index, a trading name of GAIN Capital Singapore Pte Ltd.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.