nikkei 225 potential recovery above 16200 medium term pivotal support 1822862016

Daily Outlook, Tues 26 July 2016

(Click to enlarge charts)

What happened earlier/yesterday

The Japan 225 Index (proxy for the Nikkei 225 futures) has plummeted by 2% to print a current intraday low of 16343 in today’s Asian morning session (26 July) in line with a weaker performance seen in the U.S. benchmark indices where the S&P 500 shed 0.30%.

Interestingly, the current decline seen in the Japan 225 Index has led it back to a significant medium-term support zone as market participants wait for potential new monetary easing policies (in direct form of “helicopter money”) from BOJ when its officials meet on this Friday, 29 July.

Key elements

• The current decline has led the price action of the Index towards the pull-back support of the former short-term ascending range top bullish breakout (depicted in dotted green) which is just right above our latest medium-term pivotal support of 16200 set for this week (see 4 hour chart). Also, please click on this link for more details on our latest weekly technical outlook/strategy published yesterday.
• The 4 hour Stochastic oscillator has dipped into its oversold region coupled with a bullish divergence signal seen on the 1 hour Stochastic oscillator. These observations increase the probability of a turnaround in price action to the upside as the downside momentum of the current decline has started to wane.
• The near-term resistance now stands at 16730 which is defined by a short-term descending trendline in place since 21 July 2016 high and the minor swing high area of 25 July 2016 (see 1 hour chart).

Key levels (1 to 3 days)

Pivot (key support): 16200

Resistances: 16730 & 17100/240

Next support: 15825

Conclusion

Potential recovery as the Index is now resting on its medium-term support zone with positive elements seen from momentum indicators. As long as the 16200 medium-term pivotal support holds, the Index is likely to see a potential push up in the first step to test the intermediate resistance at 16730. A break above 16730 is likely to add impetus for a further recovery to target the next resistance at 17100/240.

However, a clear break (daily close) below the 16200 medium-term pivotal support is likely to invalidate our preferred bullish scenario for a deeper slide to test the next support at 15825.

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