The Nikkei 225 rallied significantly on Thursday to break above the 200-day EMA, and perhaps just as importantly, has broken above the top of the shooting star from the previous session. This is a market that has recently escaped a down-trending channel, which suggests that the Nikkei 225 could make a bigger move toward the ¥28,300 level.
If we turn around and fall, the market is likely to go looking to the ¥27,000 level. The ¥27,000 level also has the 50-day EMA approaching it and rallying. That should be a little bit of a dynamic support level, so if we were to break below all that, the market more likely than not will drop to the ¥26,000 level. The market will remain very noisy, but it does suggest at this point that the Nikkei 225 is going to be a bit higher from what we can see. We need to make the breakout in order to put money to work, and I would be cautious about building a huge position anytime soon, but I think given enough time you could build up a bigger position if we finally break out. This will be especially true if we break above the ¥28,000 level.
On the other hand, if we see this market break down below the 50-day EMA, it’s likely that the market will drop to the ¥26,000 level, perhaps even down to the ¥25,000 level. This would be more likely in reaction to a general selloff. The risk appetite around the world is all over the place, and you need to pay attention to the other stock markets. If we start to see a lot of negativity in some of the major indices, that would more than likely have a bit of a “knock-on effect” over here. On the other hand, if the Japanese yen continues to see losses, that could be good for the Nikkei 225, as the exporters in Japan will be much more competitive. Pay close attention to the USD/JPY pair, because if it continues to go higher that may be reason enough for exporters to climb in Japan. At this point, I have to think about pullbacks as potential buying opportunities, until we get below the 50-day EMA. At that point, we have to reassess things.
