nikkei 225 daily outlook wed 20 apr 2016 risk of a failure bullish breakout watch the 16860 first su

(Click to enlarge charts)

What happened earlier/yesterday

The Japan 225 Index (proxy for the Nikkei 225 futures) has broken above the 16900 weekly pivotal resistance (upper boundary of the former “Symmetrical Triangle” range configuration) and invalidated our preferred bearish scenario for a drop towards the range support.

However, based on intermarket analysis, we are not convince of a further potential significant rise from here and also yesterday’ rally to print a high of 17153 is close to the 15 March 2016 range top of 17315 (more details below on the intermarket relationships).

Key elements

• Intermarket analysis – the China A50 Index has tumbled the most in the past 7 weeks and it is now breaking below the neckline of a bearish “Double Top” chart configuration and fast approaching the first support at 9400 where a break below it is likely to unleash more weakness. This observation has been highlighted earlier in our weekly outlook/strategy published this Monday, click here for a recap (Weekly strategy chart attached over here, please see the last chart).
• Intermarket analysis – The USD/JPY is still trading below the 109.50/70 intermediate resistance.
• The first near-term support of the Japan 225 Index rests at 16860 which is the pull-back support of the bullish breakout of the former “Symmetrical Triangle” range configuration.
• The next short-term supports are at 16500 (ascending trendline from 08 April 2016 low @12am) follow by 16250 (swing low area of 18 April 2016, formed after the failed Doha talks).
• Short-term upside momentum is showing signs of exhaustion as the 4 hour Stochastic oscillator has turned down from its extreme overbought level.

Key levels (1 to 3 days)

Pivot (key resistance): 17150

Supports: 16860 (trigger), 16500, 16250

Next resistance: 17315/450

Conclusion

Even though the Index has broken above the medium-term pivotal resistance at 16900 but intermarket analyses as mentioned above is not supporting of a potential bullish follow through and highlight the risk of a failure bullish breakout.

Daily short-term pivotal resistance will be at 17150 and a break below 16860 which will show a reintegration of price action back below the “Symmetrical Triangle” range configuration. This price action occurrence is likely to add impetus on the expected failure bullish breakout scenario and trigger further potential weakness towards the 16500 and 16250 supports in the first step.

On the other hand, a clearance above the 17150 pivotal resistance is likely to invalidate the bearish scenario for a further push up towards the 17315/450 resistance zone.

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