After a Bearish 8 Months, Japan Poised for a Breakout

01.11.2016 • Emerging Markets

By Jim Walker – Wealthy Nations (Hong Kong) –

The Nikkei 225 (NKY – 17,356) has been rangebound for some 8 months, this combined with the February/June double bottom has tempered our long held bearish view. The range is the Nikkei’s main technical feature – but is it a base or a prolonged pause before new lows? We are now leaning towards the idea that a base is being built, we will exit our remaining 50% short Nikkei position from 19,070 today.

The daily chart of the Nikkei 225 has two main features; firstly the index has been rangebound for 8 months and secondly, as part of that range, a double bottom at 14,864-14,866 formed by the February and June lows. The lack of downward progress has tempered our bearish view of the Japanese market.

A confirmed breakout from the range will likely setup the next significant trending move, we are now leaning towards an upside breakout and thus view this year’s price action as a base. The top of the range is at 17,100-17,614. The Stretch Index (daily close vs. 40-day weighted moving average, expressed as a percentage) has been mostly fluctuating between +5% and -5% since March. This range will expand when the NKY begins to trend (it is currently at +3%).

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