mizuho financial facing further potential medium term downside pressure 2685782017

Yesterday, 31 January 2017, Mizuho Financial (TSE: 8411) has released its latest Q3 2017 earnings results on a group level basis where key performance variables have managed to beat consensus;

• Sales continued to increase by 6.3% from Q2 2017 to JPY 832,338 million and beat expectation by a margin of 75% (consensus forecast: JPY 475, 639 million).
• Pre-tax profit declined by 7.4% from Q2 2017 to JPY 209,691 million but managed to beat expectation by a margin of 16% (consensus forecast: JPY 180,170 million).
• Earnings per share declined by 35% from Q2 2017 to 5.76 but managed to beat expectation by a margin of 19% (consensus forecast: 4.84).

Despite its better than expected earnings results, Mizhuo Financial has continued to slide and recorded another loss of -0.76% in today, 01 February 2017 (Japanese cash session).  The positive effects from Bank of Japan’s yield curve control monetary policy (BOJ has pledged to keep the benchmark 10-year JGB yield at 0%) and post U.S. Presidential election rally where the hyped up expectations on President Trump’s administration to remove or reduce current financial regulations imposed by the Dodd-Frank Act have started wane off.

The current movement of Mizuho Financial is now more dependent on the USD/JPY as seen from the second chart below where it has a high correlation reading of 83.94. This is likely to be the potential risk aversion factor at play in the markets on the moment (protectionist policies favoured by President Trump without much clarity on fiscal policies such as tax cuts). A further decline in the USD/JPY (JPY’s strength revival) can hurt Japanese exporter’s profit margins which translate to lower loan growth for Japanese banks and even an increase in provision for bad loans.

From a technical analysis perspective (see 3^rd chart), the USD/JPY may have already seen its major top/resistance at 118.66 (close to the 120 psychological level) and the “last line of defence” is likely the range support formed last week at 112.50 where it tested and survived in yesterday’s U.S. session. A daily close below 112.50 is likely to open up scope for a deeper decline towards the next support at 107.40/106.50 from a multi-month (1 to 3 months) horizon. If this bearish scenario for USD/JPY pans out, it will be detrimental for Mizuho Financial.  

Let us now focus on the technical elements of Mizuho Financial

Mizuho Financial (TSE: 8411)

(Click to enlarge charts)

Key elements

• The recent 38% up move from the 09 November 2016 low (post U.S. Presidential election) has stalled at a significant resistance of 225.30 which is defined by a confluence of elements. The descending trendline resistance from 02 June 2015 swing high, around the former swing low area of 24 August/29 September 2015 and a Fibonacci cluster.
• In conjunction, the daily RSI oscillator has also flashed a bearish divergence signal which indicates that upside momentum of price action has abated.
• The up move from 09 November 2016 to 12 December 2016 high has been accompanied by declining volume which suggests lack of participant that is likely to increase the probability of a bearish reversal in price action.
• The next significant supports rest at 186.90 follow by 178.740.

Key levels (1 to 3 months)

Intermediate resistance: 212.90

Pivot (key resistance): 225.30

Supports: 186.90 & 178.70

Next support: 261.80

Conclusion

As long as the 225.30 pivotal resistance is not surpassed, Mizuho Financial may see face further downside pressure towards the next support at 186.90 and even 178.70 next.

However, a clearance above 225.30 is likely to invalidate the bearish scenario to see a continuation of the multi-month up move towards the next resistance at 261.80.

Charts are from eSignal

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