The Nikkei 225 has been added to my watch (out below) list

Yesterday I outlined my reasoning for being on guard for a pullback on US indices, based on price action on the weekly chart, extremely-high open volume on VIX futures and the way that prices were drifting higher during thin trade. Today I noted a potential dead-cat bounce pattern on gold and copper prices, before raising an eyebrow over Nikkei’s price action. Perhaps I need to take my bear goggles off, but it does appear several key markets are looking for a leg or two lower, even if they’re on completely different timeframes.

Nikkei 225 futures, asset manager positioning – from the COT report:

The weekly timeframe of the Nikkei caught my eye because it has been grinding higher, with overlapping candles indicating the supposed rise is corrective in nature. And that assumes at least one more leg lower. And this does not seem unreasonable given the strong surge from ~30-40k between October and March. If we are to assume a simple 3-wave correction, the gradual rise in recent weeks could simply be a ‘B’ wave of an ABC retracement lower. And that assumes another leg lower.

Furthermore, net-long exposure to the Nikkei futures contract (in yen) has fallen this last two weeks, with asset managers trimming longs and increasing shorts. The fact it was also the strongest increase in short bets w/w since September also shows that a bearish case could be building, at least among some.

Nikkei futures technical analysis:

Weekly trading volumes have also been declining whilst prices drifted higher in recent weeks, with an inverted hammer also forming last week with a false break of 39k. The daily chart also shows that the assumed ‘B’ wave stalled around the 61.8% Fibonacci level and momentum is turning lower which has forced the daily RSI (14) to dip back below 50. Today’s false break above 39k has also seen prices fall to the daily low, so perhaps we’re getting close to its next leg lower.

Bears could seek to fade into move towards today’s high or 39k in anticipation of a retest (and possible) break below 38k. Assuming a classic ABC correction with ‘wave equality’ (where the depth of wave B to C = A to B), the Nikkei could be headed for 35k over the coming weeks. Even if it only manages a 61.8% projection, it could still be headed for 37k, just above the 36,170 low near the end of wave A.

-- 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

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.