China A50 could be teeing up for a rebound, Nikkei 225 remains trapped

China A50 technical analysis:

The 22% rally from the January low to May high confirmed that the China A50 had entered a bull market which is defined by a 20% move higher from the prior low). I should add it seems to be quite common for markets to retrace after 20% moves, amid headlines of technical bulls or bear markets. But as the rally had occurred in a relatively straight line and 13k loomed, a pullback was arguably needed.

Four months later and a 7% decline late, I suspect the China A50 is at or near another inflection point. Last week closed on the 20 and 50-week EMAs and back above a high-volume node (HVN) from the prior rally on the weekly chart. The lower wick also accounted for around half of last week’s range, which suggests bears are running out of steam. The weekly RSI (5o) also remains above 50 to show positive momentum overall.

The daily chart shows a bullish engulfing candle formed on Friday almost perfectly at a 38.2% Fibonacci ratio with high volume. Prices also recovered back above a weekly and daily HVN, closed above the monthly S1 pivot and RSI (14) reached oversold (which can be below 40 during an uptrend). Bulls also have the 12k handle nearby, should prices dip lower from here before the next anticipated leg higher.

Nikkei 225 technical analysis:

I recently outlined a bearish scenario for the Nikkei 225, where an ABC correction could potentially see the index fall to 35k. A major part of the thesis is that Nikkei has repeatedly struggle to hold on to gains above 39k and is followed with a move lower. Yet what also seems to be supporting the index is the 20-week EMA and the Nasdaq 100 repeatedly printing record highs. In all the time the Nasdaq remains supported and the yen remains weak, a move to 35k seems unlikely. I have also noted that asset managed closed gross-short exposure to Nikkei futures (in yen) at their fastest pace in six months last week. Bears may therefore be best to wait for moves towards 38 or 39k before seeking fresh shorts, with the 20-week / 100-day EMA neaby for potential support. But whilst 39k continues to cap as resistance, it remains a level for bears to consider fading into.

Of course, should sentiment for global equity markets sour and the yen regain traction as a safe-haven currency, the Nikkei would be my preference for a short given the corrective price action seen since the 36.7k low. Until them bears can fade into highs and bull step in around lows.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.