nikkei 225 daily outlook wed 03 feb 2016 final phase of mean reversion rally invalidated watch 17230

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What happened yesterday

The Japan 225 (proxy for the Nikkei 225 futures) has broken below the 17600 short-term pivotal support and invalidated our preferred push up scenario.

This morning, 03 February 2016 price action has broken below the 17230 medium-term pivotal support which is in line with the weakness seen in WTI oil and the U.S. indices.

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

Key elements

• A break below the 17230 medium-term pivotal support has put the mean reversion/ “snap-back” rally in jeopardy as we have warned earlier in our latest weekly outlook published this Monday that the expected mean reversion rally is in its “final stages”. Latest price action from other major stock indices and WTI oil has changed the whole dynamic and risk aversion is backed in force. Market is fluid and we need to respect it; for now the upper hand remains with the bears.
• The pull-back resistance of the former short-term ascending channel from the 21 January 2016 low now stands at 17230 and overhead is the most recent minor swing high (formed in yesterday’s U.S. session) at 17490.
• The hourly (short-term) Stochastic oscillator has dipped into the oversold region which suggests a possible “relief bounce” in price action for the Index.
• The next short-term support to watch will be at 16800 which is the minor swing low area of 29 January 2016 (the day of the latest Bank of Japan’s monetary policy decision – negative interest rate on excess reserves) and the 50% Fibonacci retracement of the up move from 21 January 2016 low to this Monday, 01 February 2016 high.

Key levels (1 to 3 days)

Intermediate resistance: 17230/490

Pivot (key resistance): 17600

Support: 16800

Next resistances: 18130 & 18350

Conclusion

Current technical elements and intermarket analysis have invalidated the final phase of the mean reversion rally scenario. Any potential rebound now is likely to be capped by the intermediate resistance zone of 17230/490 for another down leg towards the next support at 16800 in the first instance.

Only a break above the 17600 pivotal resistance is likely to revive the mean reversion rally for the bulls to stage an up thrust towards the next resistances at 18130 follow by 18350.

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