Technical Analysis – JP225 index remains bullish; consolidates at May high

Anthony Charalambous, XM Investment Research Desk

The Japan 225 cash index’s recent rally has paused at the May high of 22,486 after producing a ten-month high of 22,612. Following an ascent that bounced off the 21,054 level, which is the 50.0% Fibonacci retracement of the up leg from 19,860 to 22,252, the signals are leaning towards a persisting positive outlook.

The short-term oscillators reflect the bullish momentum is strengthening. The MACD is above its red trigger line and deep in positive areas, while the RSI is inclining upwards in the overbought zone. Further backing the positive view is the upward sloping Tenkan-sen line, which has moved far above the Kijun-sen line. At the same time, the 50-period simple moving average (SMA) has turned up and away from the 200-period SMA, completing a bullish crossover of the 100-period one.

If buying orders pick up and drive the price of the index above the fresh high of 22,612, the nearby resistance of 22,703, which is the 138.2% Fibonacci extension of the down leg from 22,252 to 21,052, could apply some pressure. If the bulls can sustain the climb, the 161.8% Fibo extension could test buyers ahead of the 176.4% Fibo extension of 23,168.

To the downside, moving below the 22,486 support, the Tenkan-sen line could hinder the drop to test 22,225 resistance (now-turned support). Moving lower, the congested region of 21,882 to 21,820 could prove additional support, with the 50- and 100-period SMAs located slightly below it creating more challenges for the bears.

In brief, the Japanese 225 stock index sustains its short-term bullish bias, however, if the price were to fall below the 21,590 level, the bias could return to a neutral one.