Quarterly Outlook
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Technical Update - Nikkei under pressure and could take out key support. Banks are going against the overall trend
Kim Cramer Larsson
Technical Analyst, Saxo Bank
Summary: Nikkei/JP225 cfd is looking weak and could take out key support sending the Index in to a tail spin. Support at 25,529 is key.
But it is not the banks fault. Topix Banks sector (ETF) is in a bull trend that currently doesn’t seem to be over. Short-term correction likely though
Nikkei 225 (Future/JP225 cfd) is testing the upper part of the key support at around 25,529. Multiple times the past year JP225 has spiked down and bounced from 25,529. With the 200 weekly SMA providing further support this could also be the scenario this time. However such a bounce off support could very well be limited.
21, 55 and 100 weekly Moving Averages are all declining. In fact 21 has crossed over the 55 SMA in what is called a death cross i.e., strong bearish underlying momentum.
On the daily chart almost identical picture; all Moving Averages are declining. Add to that that the daily RSI is in negative sentiment and no divergence supporting the bearish view.
If JP225 closes the week below 25,529 AND below 200 weekly SMA medium-term down trend has been confirmed and a sell off down to around 22,872 support is likely. However, a spike down to 0.618 retracement of the Q2-2020 to Q1-2021 uptrend around 21,659 which is within few points of strong support back from 2020 at 21,705.
A possible short-term bounce is likely to run out of steam between 26,500-27,000.
JP225 is below the cloud on the weekly chart underlining the bearish outlook for JP225. Lagging span is currently at the minor support at 25,884.
Topix Banks
Japanese banking Index in the form of the Topix Banks ETF has gone ballistic lately moving against the general market. But now the Topix Banks seems to be topping out short-term. Divergence on daily RSI indicates a correction is looming.
Support at around 199 is key, a close below will reverse the uptrend and could push Topix Banks ETF down to around 183-175.
Topix Banks is above the cloud on all time periods suggesting higher levels.
If Topix Banks closes above 222 a move to 254 is likely but longer-term there is room up to resistance at around 317 which 50% of the 2006-2010 down trend.
RSI divergence: When instrument price is making a new high/low but RSI values are not making new high/low at the same time. That is a sign of imbalance in the market and an weakening of the uptrend/downtrend. Divergence or imbalance in the market can go on for quite some time but not forever. It is an indication of an exhaustion of the trend
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