nikkei 225 weekly outlook 07 dec to 11 dec medium term bullish trend remains intact 1789502015

(Click to enlarge charts)

What happened last week

The Japan 225 (proxy for the Nikkei 225) has pull-backed and tested the 19600/500 intermediate support as expected. The fall in the Index is triggered the European Central Bank (ECB)’s latest monetary policies that are below market expectations.

The Index has managed to stage remarkable recovery in the overnight U.S. session and almost recovered half of its prior day’s loss as the November U.S. nonfarm payrolls data came in better than expected.

Please click on this link for a review on our prior weekly technical strategy/outlook.

Key Economic Data Release/Events

• 07 Dec (Mon) – Leading Economic Index for Oct @0500GMT
• 07 Dec (Mon) – Q3 Gross Domestic Product (GDP) @2350 GMT
• 08 Dec (Tues) – Eco Watchers Survey Report for Nov @0500GMT

Key elements

• From a high of 20031 printed on last Tues, 01 December 2015, the Index has shed 3.2% as it hit a low of 19385 on last Friday, 04 December 2015.  Interestingly, this decline in price action has challenged and managed to hold above the lower boundary (support) of the medium-term bullish ascending channel (in dark blue) in place since 29 September 2015 and the 200-day Moving Average (in orange) at the 20600/500 zone (see daily & 4 hour charts).
• In conjunction, the daily (medium-term) RSI oscillator that measures price momentum has also managed to stage a rebound right (as depicted by the yellow box) at its supports and the 50% neutrality level (see daily chart).
• The next medium-term support stands at 19190 which is a level that had been tested for five times since the swing low of 07 May 2015 and also close to the 23.6% Fibonacci retracement of the up move from 29 September 2015 low to the 23 November 2015 high (see daily & 4 hour charts).
• The intermediate resistance stands at 20050 which is the short-term range top in place since 23 November 2015 high (see 4 hour chart).
• The significant medium-term resistance remains at the 20850/20960 zone which is defined by the range top in place since late June 2015, the upper boundary of the ascending channel and 0.618 Fibonacci projection of the up move from 29 September 2015 low to 10 November 2015 high projected from 16 November 2015 low (see 4 hour & daily charts).
• The short-term (4 hour) Stochastic oscillator has inched up and it is now coming close to its extreme overbought level which suggests a potential pull-back in price action of the Index (see 4 hour chart).
• Based on the Elliot Wave Principal, the 3.2% decline seen from the 20031 high of 01December 2015 to last Friday, 04 December 2015 low of 19385 is likely the final wave c downleg of a three waves a, b, c  corrective irregular “flat – sideways” consolidation in place since 23 November 2015 high. The low of the wave c at 19385 confluences with a Fibonacci cluster (23.6% Fibonacci retracement of the up move from 15 October 2015 low to 23 November 2015 high + 1.00 Fibonacci projection of the down move from 11 November 2015 high @8pm to the 16 November 2015 low @4am projected from 23 November 2015 high). These observations suggest that the 19385 is a key inflection level which represents a high probability that the corrective wave 4/ has ended and the Index is now undergoing the start of the bullish impulsive wave 5/ to complete the medium-term term bullish impulsive wave structure labelled as (1) that is in place since 29 September 2015 low.

Key levels (1 to 3 weeks)

Intermediate support: 19600/19500

Pivot (key support): 19190

Resistance: 20050 & 20850/20960

Next support: 18650/18400

Conclusion

The dramatic pull-back seen in the Index since the start of last week has no altered the medium-term bullish trend in place since 29 September 2015 low. Right now, any potential pull-back in price action is likely to be held by the 19600/500 intermediate support before a push-up to retest the short-term range top at 20050 before targeting the significant resistance zone of 20850/20960.

On the other hand, a break below the 19190 weekly pivotal support may see a pause in the medium-term uptrend for a deeper pull-back towards the pull-back support area of the “Inverse Head & Shoulders” bullish breakout at 18650/18400.

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