nikkei 225 daily outlook thurs 14 apr 2016 a potential short term pull back below 16900 resistance 1

(Click to enlarge charts)

What happened earlier/yesterday

The Japan 225 Index (proxy for the Nikkei 225 futures) has continued its surge and had a daily close above the 16590 medium-term pivotal resistance. Given yesterday’s price movement, our direct medium-term bearish view has been invalidated as the expected minor rebound has evolved into a higher degree positive feedback loop.  Going forward on the medium-term term (multi-week), there is a possibility that we can see another round of countertrend rally (similar to the previous one seen from 12 February 2016 low to 14 Mar 2016 high of 17315). The weekly close should offer more clarity, adjust and review.

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

Key elements

• Price action is now coming close to a trendline resistance that has linked up the lower highs since 14 March 2016 high. The trendline resistance is now at 16900 which also coincides with a 76.4% Fibonacci retracement of the decline from 14 March 2016 high to 07 April 2016 low of 15329 (see 4 hour chart).
• The near-term support rests at 16590 which is the former resistance and now the pull-back support of the ascending channel (in blue) bullish breakout that has linked up the higher lows from 08 April 2016 low as well as the lower boundary of the steeper ascending channel (in green) in place since 12 April 2016 low @7am.
• Both the 4 hour and hourly Stochastic oscillators have reached their extreme overbought level where the Index may see the risk of a pull-back in price action at this juncture as upside momentum appears to be “overstretched”.

Key levels (1 to 3 days)

Pivot (key resistance): 16900

Supports: 16590 & 16200/16030

Next resistance: 17315

Conclusion

Given that the Index is now at the 16900 trendline resistance and momentum indicators appear to be “overstretched” on the upside, the Index may now shape a pull-back at this juncture. The first short-term support to watch will be at 16590 and only a break below it is likely to open up scope for a potential deeper pull-back to target the next support zone at 16200/16030 (former swing high area of 04 April 2016 + ascending channel’s support from 08 April 2016 low).

On the flipside, a clearance above the 16900 short-term pivotal resistance is likely to invalidate the pull-back scenario for a potential further direct rise towards the next resistance at 17315 (the 15 March 2016 swing high).

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