Talking Points:
- 20,0000 is usually a big number for the Japanese equity benchmark
- Long stays around and, especially, above that point have been rare beasts in the recent past
- How long can the current foray go on?
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The Nikkei 225 looks quite comfortable around the big, 20,000 level. But how much higher does it want to go?
Well, assuming that you’re a Nikkei bull, we’ll start with the good news. The index is still clearly within the uptrend channel which has marked its long and quite impressive rise from the lows of mid-May. That gain has taken the Tokyo equity benchmark to two-year highs and seen it top that psychologically important 20,000 mark which it remains above. Just.
Now for the less-good news. As the chart makes clear, the top of that upside channel hasn’t seen a lot of action; not since the May 9 peak delineated its upper boundary. And we might wonder just how valid the channel really is anyway, seeing as both its upper and lower boundaries are marked by relatively few price points.
Indeed, the more recent bumpy, sideways slog across the channel’s lower reaches makes it more likely that the index has in fact been consolidating for the past month or so. For sure it has done so in a higher range than that which came before, but it remains to be seen whether that consolidation marks a top or a base for a push yet higher.
Part of this stop-go trade may be down to investors’ natural fear of the atmosphere much above that 20,000 level. The index hasn’t been up here since the summer of 2015 after all. Back then it only managed a three-month stay and 21,000 was as far as it managed to push beyond the 20,000 line.
Bulls can certainly be pleased that nerves have held at this height for as long as they have. But if the index can’t start to extend its comfort zone to the upper end of the channel then it looks as though recent history might repeat itself at 20,000 for the index.
— Written by David Cottle, DailyFX Research
Contact and follow David on Twitter:@DavidCottleFX