Nikkei 225, China A50 Analysis: Long China, Short Japan?

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Nikkei futures currently have a day’s high-to-low range of -9%, which puts it on track for its most volatile day since 5^th of August 2024. That date is no coincidence, given concerns of a US recession coupled with a carry-trade unwind was coupled with a hawkish hike form the Bank of Japan. And that resulted in the most volatile day for the Nikkei since the 1987 crash.

It’s also fair to say we now face similar circumstances in light of Trump’s tariffs seeing the light of day, weighing on Wall Street futures and dragging the Nikkei along with it.

The daily chart shows that momentum is turning lower on the Nikkei once more, even if today’s near 10% decline is just half that seen in August. But if we’re witnessing an ABB move lower and it delivers ‘wave equality (where wave A = wave C) then we could be looking at a move down to the 2021 high. But whether it falls that far could come down to asset managers.

Nikkei Futures Positioning (in Japanese yen) – COT Report

Large speculators flipped to net-short exposure on Nikkei futures three weeks ago. That appears to have paid off, given Nikkei futures are now around 12% lower. This week’s losses could also force the asset managers who increased their net-long exposure last week to reconsider their positions.

To expect a large move lower on the Nikkei, we likely need to see asset managers continue to reduce their net-long exposure or even flip to net-short over the coming weeks. This is a key metric to watch to decipher the depth of any Nikkei sell-off. Of course, we also need to factor in the Japanese yen. Should appetite for risk remain on the ropes, demand for the yen could rise, and the Nikkei might feel the pinch of a stronger yen and lower Nasdaq 100.

Gold FY

China A50 Technical Analysis

The China A50 stumped up a 53% rally from the 2024 low to high, although a significant chunk of that arrived over three weeks in October. It may not have lasted long above the 16,000 handle, but it has mostly held onto above the May high since. The weekly timeframe has since provided choppy action, but a bullish picture seems to be once again emerging.

This week’s low has seen the China A50 remain above a long-term 61.8% Fibonacci ratio, bounce from the 50-weem EMA and May high. It could also be on track to close above the 200-day EMA.

The daily chart shows that today’s low (so far, at least) has held above the 200-day SMA and 200-day EMA. Given the significance of the moving average on the weekly and daily timeframe prices are holding above, the bias is for a move to thew double top ~14,300

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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