nikkei 225 daily outlook fri 27 may 2016 no change further potential push up above 16800680 support

(Click to enlarge charts)

What happened earlier/yesterday

The Japan 225 Index (proxy for the Nikkei 225 futures) has tested and held above the key short-term support zone of 16800/680 as expected.

Early this morning, Japan core CPI ex. fresh food has declined for a second consecutive month in April as it recorded -0.3% y/y versus a consensus of -0.4% y/y. The on-going weak growth seen in the price of consumer growths is now raising speculation that the Bank of Japan may inject more monetary stimulus to combat deflation when BOJ’s board meets on 15 -16 June after a no action at the last April’s meeting.

Please click on this link for a recap on our previous daily short-term outlook/strategy.

Key elements

• The daily (medium-term) RSI oscillator has continued to bounce above its first (steeper) trendline support and the 50% neutrality level.  In addition, it is still has room for further potential upside before reaching its extreme overbought level. These observations suggest that medium-term upside momentum of price action remains intact (see daily chart).
• The significant short-term support remains at 16680 which is defined by the minor swing high area of 23 May 2016 @12pm and close to the 61.8% Fibonacci retracement of the recent sharp rally from 24 May 2016 low of 16468 to 25 May 2016 high of 16993.
• The significant short-term resistance stands at 17250/300 which is defined by the former swing high area of 15 March 2016 and close to the 76.4% of the decline from 25 April 2016 high to 04 May 2016 low of 15820.

Key levels (1 to 3 days)

Intermediate support: 16800

Pivot (key support): 16680

Resistance: 17250/300

Next support: 16320/200

Conclusion

View on the potential extension of the corrective rally remains unchanged. As long as the 16680 daily short-term pivotal support holds, the Index is likely to see a further push up to target the next resistance at 17250/300 in the first step.

On the other hand, failure to hold above the 16680 short-term pivotal support may invalidate the preferred short-term bullish scenario for a choppy push down back into the range with a further drop to test the next support at 16320/200 (pull-back support area of the former minor rectangle/consolidation configuration bullish breakout that occurred on 09 May 2016).

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