nikkei 225 risk of a short term bearish reversal below 19420 1844152017

Short-term Technical Outlook (Tues, 21 Feb 2017)

(Click to enlarge chart)

What happened earlier/yesterday

In today’s earlier Asian session (Tues, 21 Tues), the Japan 225 Index (proxy for the Nikkei 225 futures) has rallied by 0.6% to print a current intraday high of 19373. This up move is likely to be triggered by a better than expected preliminary PMI manufacturing data for February 2017 as it came in at 53.5 versus a consensus figure of 52.1. Given this set of latest figure, Japan’s manufacturing PMI has notched a sixth consecutive month of reading above the 50 level since September 2016.

We had just published our latest weekly technical outlook on the major stock indices yesterday where we had maintained our medium-term (1 to 3 weeks) bearish bias on the Nikkei 225 (click here for a recap).

Key elements

• This morning rally in the Asian session has led the Index to a potential short-term inflection level of 19420. This resistance is defined by a short-term descending trendline from the minor swing high area of 14 February 2017 (depicted in dotted red) and the 76.4% Fibonacci retracement of the recent down move from 14 February 2017 to last week low of 19037.
• The hourly Stochastic oscillator is now coming close to an extreme overbought level which suggests limited upside potential at this juncture. In addition, the Index is likely to see the risk of a short-term mean reversion to the downside.
• The intermediate support to watch will be at 18900 which is defined by the ascending trendline from 17 January 2017 low and a Fibonacci cluster.

Key levels (1 to 3 days)

Pivot (key resistance): 19420

Support: 19177 & 18900

Next resistance: 19575 (medium-term pivot)

Conclusion

The Index is now right below a significant short-term pivotal resistance of 19420 where it faces a risk of a short-term bearish reversal. As long as the 19420 resistance is not surpassed, the Index may see a decline towards 19177 and a break below it is likely to see a potential acceleration towards the next support at 18900.

However, a clearance above 19420 is likely to put the bears on hold for a further push up to retest the 19575 medium-term pivotal resistance (the descending trendline from 09 January 2017 high).

Charts are from City Index Advantage TraderPro

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