Nikkei 225 bulls and bears wage war, explosive move incoming?

Price action in Nikkei 225 futures tells a tale of battling bulls and bears
Downside risks look more apparent given momentum, volume signals
On alert for a breakout as price coils in ever narrowing range
Nikkei 225 has been strongly correlated with USD/JPY movements recently

A battle is underway

Nikkei futures look like a market where bulls and bears are waging war, all while the price continues to coil up within a symmetrical triangle, waiting for a potential explosive break.

The sizeable wicks on the daily candles suggests the collective market hasn’t made up its mind yet, although having entered the triangle from above, the inclination is that directional risks are biased lower. It’s also noteworthy that down days are often accompanied by stronger volumes, suggesting bears marginally have the upper hand. RSI (14) and MACD continue to generate bearish signals on momentum.

Fed interpretation important

While I see more downside risk than upside, I’m not wedded to the view. Depending on what the Fed does with interest rates, and the subsequent reaction in the Japanese yen, the picture could easily change. My gut feel is the yen will be more influential on Japanese stocks than the lead from Wall Street, so that will help determine the higher probability setup.

A 50-pointer from the Fed would likely create downside pressure on USD/JPY, amplifying headwinds for the Nikkei. A 25-pointer would likely do the opposite. Over the past four weeks, Nikkei futures have had a correlation coefficient score with USD/JPY of 0.85 on a daily timeframe.

Trade ideas

If we see a downside break of the triangle, 35120 is the first level of note. Below that, 33750 has been respected on numerous occasions in recent years, making that a potential target.

If we were to see the price break out of the triangle on the topside, 36875 has acted as both support and resistance recently. Beyond that, the former uptrend will provide a test with a break above that opening the door for a potential move to the 50 and 200-day moving averages.

-- Written by David Scutt

Follow David on Twitter @scutty

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

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.