nikkei 225 potential major top may have formed below 19860 1841292017

Short-term Technical Outlook (Thurs, 12 Jan 2017)

(Click to enlarge charts)

What happened earlier/yesterday

The Japan 225 Index (proxy for the Nikkei 225 futures) has broken below the 19330 medium-term pivotal support set for this week (click here for a recap).

In our last two weekly technical outlook reports, we have been cautious on the on-going up movement of the Nikkei 225 in place since the post U.S. presidential election on 09 November 2016. The Index is coming close to the 19860/20000 major risk zone level and any potential push up is considered as “residual” in nature.

The current price movement of the Index in relation with the movement seen on the USD/JPY has increased the probability that a potential major top is now in place right below the 19860 level (the Index has printed a high of 19713 on Monday, 09 January 2013 which is just 0.7% away from 19860).

Key elements

The daily RSI oscillator is now testing its key ascending trendline support and it has flashed a prior bearish divergence signal. These observations suggest that the recent up move in price action from 04 December 2016 low is losing upside momentum and faces the risk of a further decline.
In the shorter-term, the price action of the Index is now capped by a key short-term resistance at 19400 which is defined by a confluence of elements. The descending trendline in place from the 09 January 2016 swing high, the pull-back resistance of the former trendline support from 10 January 2016 minor swing low that has been broken down in yesterday’s U.S. session and the 61.8%/76.4% Fibonacci retracement of yesterday’s down move from 19518 high (see hourly chart of the Index)
Intermarket analysis – the USD/JPY which has a direct correlation with the movement of the Nikkei 225 is now being capped by a long-term descending trendline in place since April 1990 which also confluences with the key long-term resistance at 119.80. Therefore, any potential up movement on the USD/JPY seems to be capped at this juncture which translates to limited upside potential in the Nikkei 225.

Key levels (1 to 3 days)

Intermediate resistance: 19260

Pivot (key resistance): 19400

Supports: 19050 & 18930

Next resistance: 19700

Conclusion

Technical elements have turn negative on the Nikkei 225. As long as the 19400 short-term pivotal resistance holds, the Index is likely to see a further potential decline in the coming days to target the near-term support at 18930 in the first step (the swing low area of 29 December 2016 and the 23.6% Fibonacci retracement of the up move from 27 September 2016 low to the recent high of 19713).

However, a clearance above 19400 may negate the bearish tone for another round of choppy up move to retest the 19700 resistance (major swing high areas formed in 20 December 2016 and 09 Jan 2017).

Charts are from City Index Advantage TraderPro & eSignal

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