Japan’s benchmark stock index, the Nikkei 225, recently rose to its highest close in over two months. This came after a period of consolidation since pulling back from its all-time high on Mar 22 this year, where it briefly crossed the 41,000 level.
The recent uptick in performance came after investors rotated towards value stocks. The continued weakening of the Japanese yen in recent weeks, with the USD/JPY pair rallying to the 160 level, also lent support to export-related shares.
From a technical perspective, the Nikkei 225 looks likely to resume its mid-term uptrend. Firstly, the price has continued to find support along an uptrend support line since October 2023, suggesting that the index remains in a mid-term uptrend. The price has also been well supported from retests of the 100-day Simple Moving Average (SMA) since April this year, which gives credence to the mid-term uptrend remaining intact.
In addition, despite the index struggling to cross above the 39,300 level for the past two months, a bullish ascending triangle formation has taken shape in the price chart. Higher swing lows were formed along the confluence of the uptrend support line and 100 SMA, indicating that bulls are willing to buy at higher prices.
Furthermore, the Moving Average Convergence Divergence technical indicator has crossed back above the zero line and remained above it since May. This is often considered a bullish signal, indicating that bullish momentum is building.
With the several reasons mentioned above, the Nikkei 225 is likely to resume its mid-term uptrend should it end its current consolidation phase with a break above the 39,300 ascending triangle resistance level. Following this, the index should head towards a retest of the 41,000 level, which is confluent with the projected target level of the ascending triangle breakout.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
The writer is research analyst at Phillip Securities Research
