Technical Analysis – JP225 index bounces on 50% Fibonacci; bias has yet to shift positive

Christina Parthenidou, XM Investment Research Desk

Japan’s 225 stock index drifted higher after stepping on the 50% Fibonacci of the downleg from 24,472 to 19,239 and the upper surface of the Ichimoku cloud in the four-hour chart.

While the positive momentum in the MACD and the location of the RSI, which managed to climb above its 50 neutral level, indicate some improvement in the sentiment, the bullish bias has yet to be confirmed as the former holds under its signal line and the latter seems to be losing steam.

A resumption of the bullish move could meet immediate resistance within the 22,172-22,252 area, where the price topped recently. Beyond that, the door could open for the 61.8% Fibonacci of 22,473, which managed to control the rally started in January, while higher 22,600 could be the next resistance level to keep in mind.

In case of a downside reversal, a breach of the 20-period simple moving average (SMA) could allow for more easing, with the upper surface of the cloud coming first into focus. Lower, the 50% Fibonacci could play a key role for the decline to keep going.  Should it fail to hold, the price could slip towards the 21,685 barrier and then down to the 21,500 obstacle.

In the bigger picture, the index is in an upward move and only a decisive close under the 50% Fibonacci would shift the outlook back to neutral.