nikkei 225 weekly outlook 05 oct to 09 oct potential last push down below 18130 resistance 148819201

(Click to enlarge charts)

What happened last week

The Japan 225 (proxy for the Nikkei 225) has plummeted by 5.63% from a high of 17955 in the earlier part of the week and made a new marginal low of 16893 (below the “Black Monday”, 24 August 2015 low of 17160) on 29 September 2015.

Thereafter, it staged rebound of 6.5% and recovered all its earlier losses towards the end of week in the U.S. session on Friday, 02 Oct 2015.

Please click on this link for a review on our prior weekly outlook.

Key event for this week

Bank of Japan will announce its latest monetary policy on Wednesday, 07 October 2015.

Key elements

• Despite printing a low of 16893 which is marginally lower that the “Black Monday”, 24 August 2015 low of 17160, the Index has managed to end the week with a positive footing by forming a weekly bullish “Hammer” candlestick pattern on the pull-back support (in dotted purple) of a former 17-month range bullish breakout at the 16900 level (see weekly chart).
• The weekly (long-term) RSI oscillator is still holding above its support (see weekly chart).
• Since its high of 19190 seen on 28 August 2015 which is also the medium-term significant resistance (defined by the 200-day Moving Average, in orange and the former support joining the lows of 01 April 2015, 07 May 2015 and 09 July 2015 now turns pull-back resistance, in brown), the Index has traced out a “Descending Wedge” range configuration with upper limit (resistance) at 17955 and the lower limit (support) now at 16660 (see daily chart).
• A “Descending Wedge” chart configuration is considered as a bullish set-up as it indicates a “slowdown” in downside momentum as the magnitude of the “lower lows” (slope of its lower limit) is less than the magnitude of the “lower highs” (slope of its upper limit). In addition, this type of chart configuration usually appears at the end of a swift and steep downtrend (see daily chart).
• In conjunction, the daily (medium-term) RSI oscillator has also flashed a bullish divergence signal which indicates a slow-down in downside momentum which reinforces the potential “bullish characteristics” of the aforementioned “Descending Wedge” chart configuration. However, the RSI is still capped by its trendline resistance and remained by the 50% neutrality level which suggests that upside momentum has not surfaced (see daily chart).
• Based on the Elliot Wave Principal, a “Descending Wedge” will usually consists of 5 waves (a/, b/, c/, d/ & e/) that will have 3 sub-waves (lesser degree) in each of the 5 waves. Based on the current price action, the Index appears to have traced out and completed 4 waves (a/,b/,c/,d/). It is now at the upper limit of the “Descending Wedge” and the corresponding 4 hour (short-term) RSI oscillator is now right its resistance that has capped the price action of the Index in the previous two occasions on 18 September 2015 high @12am and 28 August 2015 high @12pm (see 4 hour chart).
• In addition to the aforementioned element, the Index is likely to shape a possible final down  move (5^th wave, e/) to complete the “Descending Wedge” chart configuration at the lower limit of 16660 which is also the 0.764 Fibonacci projection from 18 September 2015 high @12 am to the current high of 05 October 2015.

Key levels (1 to 3 weeks)

Intermediate resistance: 17955

Pivot (key resistance): 18130

Support: 16900/16660

Next resistance: 19190

Conclusion

Based on the abovementioned technical elements, the Index may see a “final push down” before a potential bullish reversal occurs. As long as the 18130 weekly pivotal resistance holds, the Index is likely to see a push down to test the lower limit of the “Descending Wedge” at 16900/16660.

On the other hand, a clearance above the 18130 pivotal resistance is likely to invalidate the “last push down” scenario for a further rally to target the significant medium term resistance at 19190.

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