nikkei 225 potential final push down to complete first leg of medium term corrective decline 1827732

Daily Outlook, Tuesday 23 Aug 2016

(Click to enlarge charts)

What happened earlier/yesterday

Since the bearish breakdown of the former 16600 medium-term pivotal support on last Thursday, 18 August, the Japan 225 Index (proxy for the Nikkei 225) has started its slow descend and as per stated in our prior daily short-term technical outlook/strategy that a possible minor rebound is likely to occur first to retest the 16600 pull-back resistance before another down leg materialises (click here for a recap).

This forecasted movement has played out within our expectation so far as the Index has staged a push up towards 16600, tested it but failed to make any clear breakout as seen yesterday (printed a high of 16636 before it inched back down).

Key elements

From the minor swing high of 16771 seen on 17 August 2016, the Index has started to evolve within a short-term potential bullish “Descending Wedge” chart formation. This bullish chart formation tends to occur at the last leg/phase of a downtrend as it depicts a bearish exhaustion sign on the current down move. As seen by the two pink lines drawn on the hourly chart, the magnitude of the minor swing lows (support line) is lesser than the magnitude of the minor swing highs (resistance line).
Based on the Elliot Wave Principal and fractal analysis, the Index is likely to be undergoing the potential final 5^th wave of the minute degree wave v to complete intermediate degree wave 5 of a/ with potential end target at the 16350/300 zone (first leg of the potential corrective decline). Thereafter, a potential relief rally may occur to take it back up towards the 16740/16940 resistance zone. Based on the current state of probabilities, we still expect the potential ongoing medium-term corrective decline to end its cycle at the 16000/15900 support zone (click here to recap the details as per highlighted in our latest weekly outlook/strategy published yesterday).
The aforementioned 16350/300 potential end target of wave 5 of a/ also confluences with the former minor swing low area of 29 July 2016 and the recent minor swing high area of 05 August 2016.
The hourly (short-term) Stochastic oscillator is now coming close to its overbought region which suggests limited upside potential in price action at this juncture as the Index approaches the “Descending Wedge” resistance at 16600.

Key levels (1 to 3 days)

Intermediate resistance: 16600

Pivot (key resistance): 16740

Support: 16350/300

Next resistance: 16940 (medium-term pivot)

Conclusion

Maintain bearish bias. As long as the 16740 daily short-term pivotal resistance is not surpassed, the Index is likely to shape the potential final push down to target the 16350/300 support to end the first leg of the potential corrective decline in place since 12 August 2016 high of 16944.

On the other hand, clearance above the 16740 short-term pivotal resistance is likely to invalidate the preferred direct drop scenario for a squeeze up to test this week medium-term pivotal resistance of 16940.

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