Nikkei 225 Technical Analysis Talking Points:
- The Nikkei 225 has seen a strong run of daily rises
- The fundamental roots of these may not be very deep
- Key resistance is close but remains unchallenged
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The Nikkei 225 has put in a nice run of daily-chart gains in the past week or so.
Fundamentally, its strength seems rooted in hopes for some thaw in US/China trade relations at this weekend’s Group of 20 leaders’ Summit in Argentina. Whether this is well-founded or not, the last couple of days’ US Dollar weakness may yet weigh. Rightly or wrongly investors seem to be dialing back some of the more enthusiastic US rate-hike expectations for 2019. A weaker greenback usually plays poorly on the Tokyo stock market, replete as the Nikkei is with export titans reliant on US spending power.
Technically, however, the bulls probably have more to prove if they are going to make their gains stick. For one thing, they have yet to take the index past its previous significant high. That was the 22,490 area it got up to at the start of this month.
Even if the index can get there, the bulls will probably need to get it sustainably back within what’s currently a zone of resistance which starts at that point and continues up to the 23,000 level which was hit in mid October. If the index can break back into that zone and consolidate there, then the peaks of 2018 could come back into view.
However, it hasn’t got there yet and this week’s monthly close could be an interesting directional clue. If the index bows out below that resistance zone, then a test lower will look likely. That could take in support around 21,800 from mid-November, with the trend-line prop around 21,350 perhaps beckoning below that.
If on the other hand the index can end the month within or near that resistance zone then perhaps further gains can be expected.
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