nikkei 225 potential bullish reversal above 1666016500 support 1829862016

Daily Outlook, Tues 13 Sep 2016

(Click to enlarge charts)

What happened earlier/yesterday

Yesterday, the Japan 225 Index (proxy for the Nikkei 225 futures) has declined by 3% to print a low of 16523 in line with the horrendous single day plunge seen across the major U.S. stock indices on last Friday, 09 Sep 2016.

Interestingly, the decline in the Japan 225 Index did not breach below our medium-term pivotal support of 16500 (click here to recap the details as per highlighted in our prior weekly technical outlook). After a close examination of the current state of technical elements and cross assets relations, we have decided to maintain our bullish stance on the Index.

Key elements

• The Index has tested and managed to hold right at the lower boundary of the medium-term bullish ascending channel in place since 24 June 2016 Brexit low (see daily chart).
• The aforementioned lower boundary of the ascending channel also confluences with our predefined medium-term pivotal support of 16500 and a Fibonacci cluster based on recent price action (76.4% retracement from 26 August minor swing low to 05 Sep high of 17165 + 1.382 projection from 05 Sep high of 17165).
• Yesterday’s daily candlestick (including the U.S. session) has formed a “Doji” pattern which indicates a possible exhaustion of the initial bearish tone seen at the start of the Asian session.
• In conjunction, the daily (medium-term) RSI oscillator has also managed to test and hold right at its first ascending trendline support and the 50% level. These observations suggest that the short-term downside momentum of price action seen yesterday has stalled and price action is likely to see a potential bullish reversal at this juncture.
• However, after the sharp push up in price action seen in yesterday’s U.S. session, the Index is likely to shape a minor pull-back now towards the 16660 intermediate support as indicated by the hourly (short-term) Stochastic oscillator. The hourly Stochastic has already inched down from its overbought region and still has some room to manoeuvre to the downside before reaching an extreme oversold level.

Key levels (1 to 3 days)

Intermediate support: 16660

Pivot (key support): 16500

Resistances: 16900 & 17260

Next supports: 16000

Conclusion

Maintain bullish stance. The Index is likely to shape a potential bullish reversal above the 16500 medium-term pivotal support to test the intermediate resistance at 16900 (former minor swing low of 09 Sep & a descending trendline now in place since 05 Sep high of 17165) before targeting the next resistance at 17260.

On the other hand, failure to hold above the 16500 pivotal support is likely to invalidate the preferred bullish reversal scenario for a deeper decline towards the next support at 16000.

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