Technical Analysis – JP225 index fiercely rallies, recouping recent losses

Anthony Charalambous, XM Investment Research Desk

Japans’ 225 stock index returned to the levels where losses began one-and-a-half-months ago. The index plotted gains starting on September 2, after intensely rallying out of a sideways market that commenced on August 6.

Despite the upward slopes in the 50- and 100-period simple moving averages (SMAs) -reflecting a positive bigger picture-, as well as their bullish cross of the 200-period SMA, the bears are attempting to reverse the price down. Although the MACD has dropped below its red trigger line, it remains in positive territory, whilst the RSI currently declining in the overbought zone, heads to test the 70-level and its uptrend line.

If the bullish sentiment is revived, and the price manages to fracture the recent 21,820 high, the pickup in buying orders could test the 22,050 resistance ahead of the 22,225 level. Moving higher, the May high of 22,486 could unfold.

If the bears take the wheel and manage to correct downwards, initial support could come at the 21,590 level, before retracing to 21,355, which is the 23.6% Fibonacci level of the up leg from 19,860 to 21,820. Focusing lower on the 38.2% Fibo of 21,070, the price could pause at 21,285 and the 50-period SMA around 21,160. More durable support areas fall lower at 20,985 and around the region of the 50.0% Fibo of 20,840 until 20,790.

Overall, the signals lean towards a positive picture, and a close above the 21,820 level would cement the bullish bias.