The Nikkei 225 had spiked initially during the trading session on Thursday but gave back the gains at the ¥28,400 level to form a massive shooting star. Because of this, it’s likely that the market is going to continue to see a lot of pushback in this area, and as we are a little overdone at this point, would not be a huge surprise to see this market pullback. The ¥27,600 level is an area that the 200 Day EMA sits at, but whether or not it holds remains to be seen. After all, being stretched the way we are suggesting that we are due for that pullback.
On the other hand, if we were to break above the ¥28,700 level then it’s likely that the market could go higher and reach the ¥29,200 level. That would be an explosion to the outside, but right now it’s very unlikely that we can keep up this type of momentum. This is especially true considering how many concerns there are around the world, but the one thing that Japan has going for it is that its currency is getting eviscerated. This helps the fact that the Japanese economy is so heavily weighted to exports, but it also can cause major issues for the populace.
The 50 Day EMA is starting to curl higher, and if it can cross the 200 Day EMA, then it would open up the possibility of a “golden cross”, which is a very bullish sign. At this point, the market will probably have a lot of people jumping into the market, but I think the only thing that you can count on is that we are going to see a lot of choppy volatility.
The question now is whether or not we are in the process of forming a “double top”, so if we do pullback I would anticipate that more sellers jump in. On the other hand, if we break above the high that was made at the end of March, that would be a significant breakout. Ultimately, the Japanese equity markets will more likely than not follow the rest of the world, which doesn’t look that impressive at the moment. Pay close attention to the Bank of Japan, because they are currently fighting interest rates rising, but eventually, they may have to give up.
