For the past 3 weeks, The Nikkei stock market index has demonstrated a robust recovery from the annual minimum of 24315. An increase by 16% led Nikkei to the downtrend line from the last year's minimum of 30640. Will it be possible to break the trend upwards or will the index reverse downwards?
The reason for the upward leap in the Japanese market, as for many others, became the Fed meeting on March 16. The absence of surprises in the American regulator’s decisions was interpreted by market participants as a buy signal. Certainty, even if it is associated with the financial conditions’ deterioration, turned out to be better than the frightening uncertainty.
Japanese assets received additional support from the Yen depreciating. The national currency collapse makes Japanese exported commodities more beneficial for foreign buyers.
However, having reached the 7-year minimum with the Dollar, the Yen moved to the corrective growth. At least for a while, the Japanese stock market will lose support of the national currency depreciation.
Today's publication on Japan Retail Sales’ statistics over the past month added to the negative reasons. The indicator decreased by 0.8%, this is the first decrease since October last year. The Japanese economy continues experiencing serious growth problems.
On March 28, the Bank of Japan demonstrated how much trouble is the world's 3rd economy in. To keep the rate of return of the Japanese government bonds from rising, the regulator suggested market participants selling an unlimited number of 10-year government bonds. If the rise in bonds’ rates of return to the level of only 0.25% leads to such non-standard measures, what will happen in the case of accelerated growth of interest rates around the world?
In terms of technical analysis, in the chart, the Nikkei growth wave stopped exactly at the downtrend line from the autumn maximum of 30640. The RSI indicator is in the strong overbought zone and begins the downward reversal. There is an opportunity to sell the Japanese index.
The following trading strategy option can be suggested:
A sell of Nikkei in the 27800-28000 range. Take profit: 27000. Stop loss: 28 300.
Also, traders on their own can use Trailing stop instead of a fixed Stop loss when the price moves down.