nikkei 225 mixed elements turn neutral for now 1824362016

Daily Outlook, Wed 03 Aug 2016

(Click to enlarge charts)

What happened earlier/yesterday

The Japan 225 Index (proxy for the Nikkei 225 futures) has breached below the 16200 medium-term pivotal support in yesterday’s European session (02 August). It printed a low of 16008 in the early U.S. session before it managed to inch back up above the 16200 medium-term pivotal support in today’s Asian session.

This decline came in line with the JGB 10 year yields that has spiked up to -0.06% ( 4^th consecutive day of rallies from 27 July 2016 low of -0.291 and renewed JPY’s strength that saw the USD/JPY breached below last Friday’s low of 101.94 and tested the upper limit of the long-term key support at 100.70 before it shaped a push up in the late U.S. session. In addition, the Japanese cabinet has approved 4.6 trillion yen in extra spending for the current fiscal which is just a fraction (16%) of the total 28 trillon yen stimulus package announced last week by PM Abe.

Key elements

• Even though it has managed to trade back above the 16200 medium-term pivotal support set for this week, but current price action has reintegrated back into the short-term ascending range in place since 24 June 2016 by breaching the pull-back support (depicted in dotted green). This observation does not bode well for the bulls (see 4 hour chart).
• The aforementioned pull-back support of the short-term ascending range is now acting as a resistance at 16400 which the Index needs to surpass to negate the current short-term bearish tone (see 4 hour chart).
• The 4 hour Stochastic oscillator has just exited from its oversold region which implies that the downside momentum of yesterday’s decline in price action has started to wane. This is a positive observation.
• Yesterday’s late rebound in the price action has occurred at a short-term pull-back support (depicted in dotted dark blue) from 21 July 2016 high at 16000 which also held last Friday’s decline that occurred before and after BOJ’s monetary policy announcement. The 16000 level  also confluences with a Fibonacci cluster

Key levels (1 to 3 days)

Supports: 16200/16000 & 15830

Resistances: 16400 & 16780

Conclusion

Mixed elements, turn neutral. Only a break above 16400 is likely to negate the current bearish tone to revive the bulls for a potential push up to target the next resistance at 16780 in the first step.

On the flipside, failure to hold above 16000 may open up scope for a further decline towards the next support at 15830.

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