The Nikkei 225 cash index edged north yesterday, and during the Asian morning today, it managed to overcome the key resistance territory of 21400. The advance continued, with the index currently trading above the peak of May 10th, which is at around 21580. This, combined with the fact that the price is trading above a tentative upside support line drawn from the low of June 4th, suggests a positive near-term picture in our view.
We believe that the move above 21580 may have encouraged more bulls to join the action, something that is possible to lead the battle towards our next resistance territory, at around 21915, defined by the inside swing lows of May 5th and 6th. If that level is not able to halt the rally either, its break may carry more bullish implications, perhaps setting the stage for the highs of those days, near 22220.
Our short-term momentum studies detect strong upside speed and support the notion for the index to continue drifting north for a while more. The RSI moved above its 70 line, and continues to point up, while the MACD lies above both its zero and trigger lines, pointing north as well.
In order to abandon the bullish case, at least in the near term, we would like to see a clear dip below the 21165 area, which currently coincides with the 200-EMA on the 4-hour chart. Such a dip would also bring the rate below the aforementioned upside line and could initially pave the way towards the 20950 support territory. That said, before we get confident on more negative extensions, we would like to wait for a dip below 20870, a support marked by the inside swing high of June 5th. Such a dip could allow declines towards the low of that day, near 20650.
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