nintendo 7974 tse risk of a medium term bearish reversal 1822252016

Nintendo Co. Ltd has been hogging the limelight in the past two weeks as its share price (7974 TSE) listed in the Tokyo Stock Exchange soared by 77% from 11 July 2016 low after Pokémon GO went live.

Due to the current raze and much anticipated future revenue streams that can be generated from mobile advertisement/sponsorship fees and additional apps based purchase from Pokémon GO has lead Nintendo Co share price to outperform its rivals such as Tencent, Electronic Arts and Activision Blizzard. Ironically within a span of two weeks, Nintendo has reversed its fortunes from being one of the worst performers to the best performing globally in the gaming industry!

Let’s us take a deep dive into Nintendo Co. from a technical analysis perspective

Nintendo Co. Ltd (7974 TSE)

Click to enlarge charts)

Key elements

• Nintendo’s price action has formed a “Spinning Top” candlestick pattern on Tues, 19 June 2016 right at the March/April 2010 swing high area of 32700. This type of price action as indicated by the aforementioned candlestick pattern indicates “indecisiveness” by the bulls to push the price higher. The 32700 major resistance level also confluences now with a Fibonacci cluster (38.2% Fibonacci retracement from the 2007 high + 1.00 Fibonacci projection from July 2012 low of 8060.
• The weekly RSI oscillator has almost reached at extreme overbought level which has capped prior advances in the past. This observation suggests limited upside potential for Nintendo at this juncture.
• Price action and volume analyses are now advocating for at least a medium-term (1 to 3 weeks) decline. Firstly, it has formed an “exhaustion gap” on Tues, 19 July 2016 followed by another gapped down seen today that has ended with a bearish candlestick (close price below open price). Secondly, the recent two gapped up/down days have been accompanied by climatic volume readings not seen before in the past decade.
• The key supports to watch now rests at 25250 which is defined by the August 2015 swing high and the 38.2% Fibonacci retracement from 28 June 2016 low to Tuesday, 19 July 2016 high follow by 19500/18390 (the former swing low areas of June to October 2015 & the “continuation gap” zone)

Key levels (1 to 3 months)

Pivot (key resistance): 32700

Supports: 25250 & 19500/18390

Next resistance: 46000

Conclusion

Technical elements are advocating for a potential medium-term bearish reversal on Nintendo. As long as the 32700 pivotal resistance is not surpassed and a break below 25250 is likely to trigger a potential multi-week decline to target the next support zone of 19500/18390.

However, a clearance above the 32700 pivotal resistance may invalidate the preferred bearish bias for another “rocket rally” towards the next resistance at 46000 (the former major swing lows area of August 2007/January 2008.

*Nintendo Co. (7974 TSE) is not a component stock in the benchmark Nikkei 225

Charts are from eSignal

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