Finally, Nikkei 225 exited the range between roughly the 20825 and 21860 levels, in which it was trading in since around mid-February. The cash index broke the upper side of the range during the European trading hours on Friday, which resulted in a positive gap on the actual index at the opening of this week. During the Asian trading session today, the index kept on moving higher, but met its resistance near the 22225 barrier, marked near the low of November 30th. In our view, given that the Japanese index pushed higher and formed a new higher high, investors may see such a move as a positive, which could allow them to push the index further north. For us, before examining further upside, a break above the recent resistance level is needed.
As mentioned above, in order to target higher areas, a break above the 22225 barrier is required. This way, another higher high would be confirmed, and the price might accelerate towards the next potential resistance zone, at 22590, near the highs of November 8th and December 4th. Around there, investors might think the index as slightly overstretched to the upside, which means it may slide back a bit, possibly to test the 22225 hurdle from above. But if then, Nikkei continues to balance above that hurdle, we would class this move as a correction, as the buyers could start coming back in and driving the index to the upside again. If the buying power is strong enough to overcome the 22590 area, such a move could lead Nikkei 225 further up, potentially aiming for the 22780 level, marked by the peak of December 2nd.
Our oscillators are in support of the above-discussed idea. The RSI is above 50 and points higher. The MACD is also pointing to the upside by sitting above zero and its trigger line.
If, suddenly, we see Nikkei 225 moving back below the upper side of the range, at 21860, this might raise concerns over the upside potential in the near term, and the index would now be placed in our neutral territory. In order to target lower areas, we would wait until we see a clear break below the 21550 obstacle and the medium-term upside line taken from the December low. Such a move could allow further declines within range, which may drag the price to test the 21300 zone. A break of that zone could push Nikkei further south towards the 20962 hurdle, or even the 20825 level, which is the lower side of the aforementioned range.
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