Technical Analysis – JP225 index slumps to oversold area; key support ahead


Christina Parthenidou, XM Investment Research Desk

Japan’s 225 stock index has been unable to clear the heavy resistance around the 50% Fibonacci extension of the long donwleg from 24,472 to 19,239, with the price falling forcefully below its simple moving averages (SMA) and the Ichimoku cloud over the past week.

The RSI and the Stochastics suggest that negative momentum could stall in the short-term as both indicators have slumped into oversold territory, but according to the MACD any price reversal may not last for long as the index seems to have changed direction to the downside.

A rally back above the 38.2% Fibonacci of 21,235 could recoup some buying confidence, though, only a closing price above the 50% Fibonacci of 21,854 could prove constructive. If that is the case, resistance could move up to the 61.8% Fibonacci of 22,468 where the market action topped early in May. Higher, the spotlight would turn to 23,000.

On the flip side, should the bears clear the key 20,473-20,280 support zone, selling pressure may extend to 19,700, while lower and under the 19,239 bottom, the bears would need to beat the 19,000 number to keep the downtrend in play.

Meanwhile in the medium-term, the market maintains a neutral profile as long as It trades within the 22,486-20,280 boundaries. Any violation at these boundaries could direct the index accordingly.

Summarizing, JP225 looks strongly bearish in the short-term, with the potential of an upside correction rising high, while in the medium-term, market players look indecisive, driving the pair sideways.