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Technical Analysis NIKKEI : 2016-12-28


Low activity as usual in between Christmas and New Year
As a rule, investor’s activity is quite low in between Christmas and New Year. We believe this may trigger correction if there has been the strong trend in recent weeks. Let’s study Nikkei chart, may it correct down?
Japanese stock index has been advancing for 7 straight weeks and hit a fresh 12-month high last Tuesday. This Tuesday it retreated as Toshiba stocks slumped 12% on the news it may bear losses from asset impairment of several hundred billion yens. In fact, Nikkei is being not far from 20-year high hit last June. As a rule, stock index falls when yen strengthens. Strong currency is considered to impair the conditions for Japanese exporters. Weak economic data came out in Japan on Monday. Core inflation for November fell for 9th straight month to -0.4% which means deflation. Moreover, the household spending fell and unemployment edged higher. The data pushed yen lower. Nevertheless, USDJPY strengthens weakly as market participants doubt the Bank of Japan is to undertake any actions. At its latest meeting last week the Bank said it was not going to raise interest rate for inflation to reach the target of 2%. The next BoJ meeting will take place on January 31, 2017.

On the daily chart Nikkei: D1 continues edging higher. It hit a fresh 12-month high last week. Now its pace of growth slowed down and several technical indicators point at possible downward retracement. Further decline of stock index is possible in case yen strengthens against the US dollar and in case of negative corporate news from Japan.

  • Parabolic gives bullish signal which may serve additional level of support. In such a case the chart shall fall below it to open a position.
  • Bollinger bands have widened a lot which means high volatility.
  • RSI has left the overbought zone having formed negative divergence.
  • MACD gives bearish signals.

The bearish momentum may develop in case Nikkei falls below the last fractal low, the support of the rising trend and the Parabolic signal at 19100-19000. This level may serve the point of entry. The initial stop-loss may be placed above the 12-month high at 19700. Having opened the pending order we shall move the stop to the next fractal high following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at above 19700 without reaching the order at 19100-19000, we recommend cancelling the position: the market sustains internal changes which were not taken into account.

Summary of technical analysis:


Position Sell
Sell stop below 19100-19000
Stop loss above 19700

Wednesday, 28 Dec, 2016 / 10:37

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