The Nikkei 225 initially tried to rally during the session on Thursday but has given back much of the gain to the ¥26,400 level. The market continues to be very volatile, but Japanese equities are simply mimicking what we are seeing around the world. As we continue to see a contraction of earnings around the world, it does make a lot of sense that the Nikkei 225 will fall right along with the other indices.
The ¥25,600 level looks to be important, as we have formed a bit of a “double bottom” in that general vicinity, so therefore it makes sense that we would see that as a support level. If we were to break down below that level, then the Nikkei could go looking to challenge the ¥25,000 level, perhaps even the ¥24,800 level after that. Breaking through that could open up the floodgates for the Nikkei, allowing the market to completely unravel.
The alternate scenario is that we take out the 50 Day EMA, which is roughly at the ¥26,800 level. The market continues to see a lot of noise in that area from what I can see, mainly due to the fact that historically it has been very noisy. If we were to break above that level, then the 200 Day EMA comes into the picture at ¥27,300. After that, the ¥20,400 level is major resistance, and if we can break above there it’s likely that the market goes much higher. That being said, it’s very difficult to see that happen, but I do think that the most bullish case will be that we simply bounce around in this consolidation area, as the Nikkei 225 has to worry about a global recession. If that is going to be the case, the market will suffer due to the fact that Japan is highly sensitive to exports. After all, is an export-laden economy so therefore the major input of this index is going to be whether or not the Japanese can send their goods across the Pacific Ocean.
The Japanese yen has been getting eviscerated, so the currency part of the equation is not much to worry about, and if anything, it’s actually a bullish situation. The currency markets seem to have very little effect on this market currently, but if we start to see the Japanese yen appreciate in value, then that could be yet another had when for the Nikkei.
