nikkei 225 noise around 16340 medium term pivotal support potential recovery scenario remains intact

Daily Outlook, Tues 27 Sep 2016

(Click to enlarge chart)

What happened earlier/yesterday

The Japan 225 Index (proxy for the Nikkei 225 futures) has staged a 2.70% decline from yesterday high of 16733 in line with the major benchmark stock indices across the board. The catalysts for this tumble were the uncertainty that aroused from the upcoming U.S. presidential elections as polls have indicated a close fight between Hilary and Trump as we head into the first debate that was just concluded in today’s Asian mid-session. Secondly, the legal woes of Deutsche Bank had arisen again as media reported that leading German lawmakers are unlikely to bail out Deutsche Bank if it falls short of the new capital requirements as imposed by the new Basel III rules due to the latest hefty fine of U.S. $14bn imposed by the U.S. Department of Justice over mis-selling of U.S. mortgage securities.

However from a technical analysis and cross assets class relationship perspective, we think that yesterday’s decline seen across global equities are overdone (noise) and all of the major stock indices (S&P 500, DAX, Nikkei 225 & Hang Seng) are right at/ or just above their respective medium-term pivotal supports. In addition, current price actions of these indices (futures on the S&P 500) have indeed shaped a strong rebound from these parallel support levels. Please click on this link to recap our latest weekly technical outlook/strategy published yesterday.

Key elements

• The Japan 225 Index has shaped a rebound from the medium-term pivotal support at 16340.
• The hourly Stochastic oscillator has flashed a bullish divergence signal at its oversold region which suggests that the downside momentum of yesterday’s decline has abated. The Index is likely to stage a potential recovery at this juncture.
• From an intermarket/cross asset class analyses, the USD/JPY, a proxy of global risk aversion behaviour is still holding above its key long-term pivotal support at 100.00/99.00. Interestingly, it has managed to hold above the upper limit of 100.00 throughout yesterday’s entire U.S. session as the Japan 225 Index (proxy for the Nikkei 225 futures) and benchmark U.S. stock indices (SPX, NDX, INDU) sold off.  This a clear mismatch of risk aversion correlation behaviour among different major asset classes and it is a potential tell-tale sign that yesterday’s sell-off seen in global equities is likely a “noise” as the respective parallel medium-term pivotal support still holds across the major indices (S&P 500 = 2135, DAX = 10380, Nikkei = 16340, Hang Seng = 23000, ASX 200 = 5360).
• The short-term resistances for the Japan 225 Index remains at 16990 and the 17165 range top in place since 31 May 2016 high.

Key levels (1 to 3 days)

Pivot (key support): 16340 (medium-term)

Resistances: 16990 & 17165

Next supports: 15830

Conclusion

Maintain medium-term potential recovery scenario (1-3 weeks) and considered yesterday’s decline as noise. As long as the 16340 medium-term pivotal support holds, the Index is likely to shape a potential up move to retest 16990 before targeting the 17165 intermediate range top in the first step.

However, failure to hold above the 16340 medium-term support (daily close below) is likely to invalidate our preferred medium-term bullish view to open up scope for a deeper decline towards the next support at 15830.

Charts are from City Index Advantage TraderPro & eSignal

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