- The Nikkei 225 recorded a month-on-month return of +5.80% in May, the highest price in 33 years.
- The Nikkei 225 outperformed the MSCI All Country World Index year-to-date (17% vs. 9%).
- Overbought below the 30,835 key resistance.
Japan’s stock market continues to rise, outperforming other markets around the world. The benchmark Nikkei 225 recorded a month-to-date return of +5.80% in May at the time of this writing, greatly exceeding the US S&P 500 (-0.26%) and MSCI All Country Asia (excluding Japan) (-0.61%). I was. , MSCI Emerging Markets (+0.08%), STOXX Europe 600 (-0.57%).
The potential reasons and underpinnings for strategic and tactical performance that may persist into the second half of 2023 were detailed in a previous article..
The medium-term upward trend of the Nikkei Stock Average, which has continued since the low of 25,661 yen on January 4, 2023, reached 30,677 yen, the first high in 52 weeks and 33 years. In the lens of technical analysis, price movements in liquid and tradable financial instruments are cyclical rather than vertical, where short-term periodic corrections occur within trend phases of higher timeframes as sentiment. move in a smooth waveform. Market participants adjust accordingly due to their greed and fear of new and relevant information.
Now the Nikkei 225 faces the risk of a short-term correction move that pulls back some of the 4-year medium-term uptrend phase after a sharp rally in terms of how fast it reached its current highs. . January 2023 low.
Japan 225 Technical Analysis – Focus on Key Resistance at 30,835
Figure 1: Japan 225 trends as of May 18, 2023 (Source: TradingView, click to enlarge chart)
The Japan 225 Index (a proxy for Nikkei 225 futures) hovers just below key resistance at 30,835, where the bulls have failed to stage a breakout the past two times on Friday, a sign of imminent daily ‘top’ bull exhaustion. A Japanese candlestick pattern has formed. February 2021 and September 13, 2021.
In the short term, as seen on the 4-hour timeframe, the index action has broken out bullishly of the upper end of the minor uptrend from mid-March 2023 and accelerated upwards on 15-May-2023 on the 4-hour timeframe. Did. The RSI oscillator has reached an extreme overbought level of 82% since March 5, 2023.
These observations suggest that the uptrend in the index has gone too far, with short term (multiweek) corrective The likelihood of a decline is increasing.
The immediate support to watch is 29,970/29,700 and below 29,700 the next support is 29,130. This is consistent with his rising 20-day moving average.
On the other hand, at the 4-hour close clearance above 30,835, the next resistance zone defined by a cluster of Fibonacci extension levels and the former swing low area of June 18/25, 1990 is believed to come at 31,830/31,570. increase.
