nikkei 225 potential positive signs have resurfaced turn bullish above 16820760 1828782016

Daily Outlook, Wed 31 Aug 2016

(Click to enlarge charts)

What happened earlier/yesterday

The Japan 225 Index (proxy for the Nikkei 225 futures) has broken above the 16780 predefined short-term pivotal resistance in yesterday U.S. session in line with the expected explosive rally seen in the USD/JPY.  To recap, we have turned bullish on the USD/JPY last week and published a report right before the Jackson Hole conference (click here for the detailed report). Therefore, the direct drop scenario for the Index has been invalidated.

Given the current movement seen in the Index and the USD/JPY, our preferred medium-term bearish view on the Nikkei 225 has been negated even though the Index remains below the 16940 medium-term pivotal resistance as per highlighted in our latest weekly technical outlook published this Monday, 29 August (click here to access).

Key elements

• The movement of the expected “relief rebound” from last Friday, 26 August low of 16340 has become impulsive as it has managed to surpassed the former pull-back resistance in place since the minor swing low area of 16 August 2016 now turns into a support (in dotted green) at 16820.
• In addition, the Index has also surpassed the 76.4% Fibonacci retracement of the recent decline from 12 August 2016 high to 26 August 2016 low of 16340 which has made the scenario for another leg of corrective decline less likely.
• Momentum has also started to turn positive as the daily (medium-term) RSI oscillator is now breaking above its resistance after it has managed to hold above its 1^st support (ascending trendline) and the 50% level.
• The key short-term support to watch now will be at 16760 which is defined by the former minor swing high areas of 17/18/29 August 2016 and the 23.6% Fibonacci retracement of the ongoing up move from 26 August 2016 low to yesterday’s high of 16892.
• The intermediate resistance after the medium-term range top of 16940 stands at 17120 which is defined by the 1.00 Fibonacci projection of the up move from 26 August 2016 low of 16340 to 29 August 2016 minor swing high of 16781 projected from 30 August 2016 minor swing low of 16686.

Key levels (1 to 3 days)

Intermediate support: 16820

Pivot (key support): 16760

Resistances: 16940 & 17120

Next supports: 16630 & 16450

Conclusion

Turn bullish. As long as the 16760 daily short-term pivotal support holds and a break above 16940 is likely to add impetus for a further potential rally to target the next resistance at 17120 in the first step.

On the other hand, failure to hold above the 16760 pivotal support is likely to invalidate the preferred direct rise scenario another round of choppy decline to test the next support at 16630.

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