Technical Analysis – JP 225 index pins new multi-year high; bearish divergence detected

Japan’s 225 stock index (cash) surpassed February’s high to top at 30,804 on Tuesday – the highest since the 1990 bubble levels – before closing a bit lower.

While the index has corrected the minor pullback below the 20-period simple moving average (SMA) and is currently set to rechallenge the 30,545 – 30,600 barrier, the negative trajectory in the RSI and the MACD continues to conflict the latest higher highs in the market, warning of a bearish divergence phenomenon. In other words, the momentum indicators signal that the market has overextended itself to the upside.

If resistance around the red Tenkan-sen line at 30,545 proves hard to clear, the index could slide to find immediate support around the blue Kijun-sen line at 30,336. A steeper decline could test the 50-period SMA at 30,104, while a drop below the 30,000 threshold could halt around the 29,872 handle, where the upper surface of the Ichimoku cloud happens to be.

On the upside, if the bulls successfully run beyond 30,600, the door would open again for the multi-year high of 30,804. Breaching that ceiling, the 31,000 mark could be of psychological importance, and therefore, could next dare bullish actions.

All in all, the bullish bias in JP 225 seems to be losing steam, with traders waiting for a close below 30,336 before they reduce exposure in the market.

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