The Nikkei 225 cash index opened Monday with a positive gap and rallied during the Asian morning, to hit resistance near 21670, the upper boundary of the sideways range it’s been trading within since March 6th. Then, it pulled back. Despite today’s rally, given that Nikkei continues to trade in a trendless mode, we prefer to hold a flat stance with regards to its near-term outlook for now.
We would like to see a decisive break above 21670 before we examine whether the picture has started leaning to the bullish side. Such a move would signal the upside exit out of the range and may set the stage for the 21860 resistance territory, marked by the peak of March 4th. If that zone does not prove to be an obstacle for the bulls, then we may see them putting the 22000 psychological zone on their radars, which is near the high of December 5th.
That said, taking a look at our short-term oscillators, we see that the RSI topped near its 70 line and turned down, while the MACD, although above both its zero and trigger lines, shows sings of slowing down. It could also turn south soon. These indicators suggest that some further retreat may be in the works before, and if, the bulls decide to take charge again, perhaps for the price to test the 21390 area as a support this time.
Now, in case the setback continues below the 21300 area, this may be a sign that investors want to keep the index range-bound for a while more. Such a dip could allow declines towards the 21155 level, the break of which could see scope for extensions towards the low of March 28th, at around 20965.
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