nikkei 225 weekly outlook 31 aug to 04 aug potential bullish reversal above 18160 support 1165942015

(Click to enlarge charts)

What happened last week

The Japan 225 (proxy for the Nikkei 225) has continued to tumble together with the rest of the developed stock markets triggered by a sell down (“Black Monday”) in the Shanghai Composite Index. This carnage has led the Index to pierce below our expected downside target of 18300/18000 and printed a low of 17160.

The Index has recorded a weekly decline of 10% (from high to low) and this performance is the worst since 02 June 2013.

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

Key elements

• The Index has challenged and managed to stage a recovery at the key long-term support of 18300/18300 which is defined by the neckline of the long-term bullish “Double Bottom” breakout and the 23.6% Fibonacci retracement of the long-term uptrend from 20 November 2011 low to the current June/July 2015 range top (see monthly & weekly charts).
• The Index has managed to end the week with a weekly bullish “Hammer” candlestick pattern at the 18300/18000 key long-term support which indicates a potential bullish reversal is round the corner after a horrendous 18% decline recorded from the June/July 2015 range top of 20850/20960 (see weekly chart).
• The “Double Top” bearish breakout exit target has been met as well at the 18300/18000 zone (see daily chart).
• The intermediate resistance to watch will be at 19500 which is defined by the neckline of the “Double Top” bearish breakout, 200-day Moving Average (in orange) and the 61.8% Fibonacci retracement of the recent steep down move from 11 August 2015 high to the “Black Monday”, 24 August 2015 low (see daily & 4 hour charts).
• In addition, the daily (intermediate-term) RSI oscillator is still capped below by its trendline resistance which suggests limited upside potential (see daily chart).
• The 4 hour (short-term) Stochastic oscillator has dipped into its oversold region which suggests a potential revival in upside momentum is round the corner (see 4 hour chart).
• Based on the Elliot Wave Principal, the Index appears to have completed a 3-month    corrective “Flat” (a/,b/,c/) configuration that started on 24 June 2015 high @8am as it has met the expected price objective of this corrective “Flat” at 18300 based on the 1.382 Fibonacci projection from 24 June 2015 high @8am to 11 August 2015 high @8am (see 4 hour chart).
• The USD/JPY has also managed to stage a strong recovery at its key 115.60 support (long-term ascending channel in place since 10 September 2012 low. Since October 2011, the movement of USD/JPY and Nikkei 225 has been positively correlated. Thus, if USD/JPY has managed to find a “floor” at the 115.60 support, it will be positive for the Nikkei 225 (see last chart).

Key levels (1 to 3 weeks)

Intermediate support: 18470

Pivot (key support): 18160

Resistance: 19500 & 20080

Next support: 17160

Conclusion

Even though last week price action is horrendous (the worst weekly performance since June 2013) but if we look at the “puzzle” from an integrated approach (using graphical technical analysis, momentum studies, Elliot Wave & intermarket relationship), the Index is likely to have seen a “bottom” at the 18300/18000 key support.

A potential multi-week recovery should now follow and any pull-back is likely to be held by the intermediate support at 18470 with a maximum limit set at the 18190 weekly pivotal support. A break above the 19500 resistance is needed to reinforce a further upside movement to target the next resistance at 20080.

On the contrary, failure to hold above the 18160 pivotal support is likely to invalidate the bullish scenario for a slide to retest the 24 August 2015 low of 17160.

 Source:  Charts are from eSignal & City Index Advantage Trader

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