nikkei 225 short term bullish configuration intact despite yesterdays plunge 1820142016

Daily Outlook, Thurs 07 July 2016

(Click to enlarge charts)

What happened earlier/yesterday

Since hitting a high of 15825 on Monday, 04 July 2016, the Japan 225 Index (proxy for the Nikkei 225 futures) has failed to make any breakthrough above the 15865 predefined intermediate resistance and tumbled by 4.26% to hit a low of 15118 seen in yesterday European session, 06 July 2016.

The main fundamental driver that triggered this decline is the fall in the USD/JPY as JPY’s strength resurfaced (proxy for safe haven flows) triggered by renewed Italian banking crisis that will have a negative domino effect across the EU financial system. In addition, uncertainty continues to rage on the technical details of a potential bailout plan for beleaguered Italian banks. The local Italian government is considering injection billions of euros into the banking system but EU bank bailout rules require investors (shareholder and bondholders) rather than taxpayers to shoulder the burden of such rescue package.

Despite yesterday’s plunge seen in the Nikkei 225 and USDJPY, they are still holding above their medium-term and long-term pivotal supports at 14835 and 100.70 respectively.

Please click here to recap our latest weekly technical outlook/strategy published on Monday, 04 July 2016.

Key elements

• The Index is being supported by the lower boundary of an ascending channel in place since the 24 June 2016 low of 14835 (Brexit) now at 15120.
• The aforementioned ascending channel support also confluences with the 61.8%/76.4% Fibonacci retracement of the recent rally seen from 24 June 2016 low to 07 July 2016 high of 15825.
• Both the 4 and 1 hour RSI oscillators are bullish as they continue to hold above their respective supports after their retests. These observations suggest that short-term upside momentum of price action has resurfaced.
• The significant short-term resistance remains at 15865 “stubborn level”.

Key levels (1 to 3 days)

Intermediate support: 15280

Pivot (key support): 15120

Resistances: 15825/865

Next support: 14835 (medium-term pivot).

Conclusion

Remain bullish. As long as the 15120 daily short-term pivotal support holds, the Index is likely to see a potential short-term recovery to retest the 15825/865 resistance.

On the other hand, failure to hold above the 15120 short-term pivotal support may negate the preferred bullish tone for a further slide to retest the 14835 medium-term pivotal support. Only a clear break (daily close) below 14835 is likely to trigger a more pronounced decline towards the long-term key support at 13900.

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