In a dazzling display of strength and resilience, the Japanese stock market has caught the attention of renowned investors like Warren Buffet as it soared to heights unseen since the 1990s. The prospect of sustained upside fuelled dreams of unprecedented wealth, attracting traders in an optimistic bullish run. However, despite the optimism, a fierce battle erupted between the bulls and an unexpected resistance on Monday, causing an intraday reversal that enthralled traders.
The initial intraday gains were triggered by the optimism around a debt limit deal in the US, which weakened the Japanese Yen to benefit the futures market. Additionally, a sustained chip-related rally continued to boost the upside, with the shares of chip-testing equipment maker Advantest reaching record highs in a 6.9% surge. However, the intraday rally met strong resistance, ultimately defeating the bulls in an intraday reversal. Could this reversal be a speed bump on the road to record highs for the Nikkei Futures, or is it the start of a longer-term reversal?
Technicals
The 4H chart displays the stellar bullish run, reaching highs at 31,690 before the eventual reversal that forced the futures below the daily pivot point at 31,315. The bulls now face the pivot point as resistance in their fight to maintain the upward momentum, where a sustainable breakthrough could be required to continue the momentum.
If they fail to break through the pivot point, the bears could be licking their lips at a potential rising wedge breakdown at 31,065 (S1), forcing the futures to look for lower support at 30,760. If the Japanese unemployment and retail sales data due this week signal a potential pivot in the Bank of Japan’s ultra-loose monetary policy, the downside could be exaggerated toward 30,635 (S2) and 30,400.
However, if the bulls shift the futures above the pivot point, the continuation of the uptrend is possible. Resistance at 31,745 (R1) stands in the way of reaching new highs at 31,995 (R2) on a return to optimism in the global equity market.
Investors Opportunity
For intraday risk-averse investors looking for long-term, cost-effective opportunities, one could look to exchange-traded Products which track the performance of a basket of Nikkei securities.
One such opportunity is with Exchange Traded Funds (ETFs), which can track different sectors within one main Index of interest. Two such ETFs are the Sygnia Itrix MSCI Japan Index ETF (JSE: SYGJP) (purple line) which has Toyota, Sony and Keyence as part of their top ten holdings and the iShares MSCI Japan Small-Cap ETF (ARCA: SCJ)(blue line) which is more aligned towards companies with smaller capitalisations.
Summary
With a 21% year-to-date performance, the Nikkei 225 futures are firmly under bullish control. The price action around the daily pivot point could be crucial in determining whether the Monday blip is just a speed bump or a signal to a longer-term correction. If the bulls move above the pivot point sustainably, the uptrend could continue, where resistance is established at 31,745 and 31,995.
Sources: Koyfin, Tradingview
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