- Summary:
- In this Nikkei 225 outlook, we explain why the Japanese stocks could drop further in the next few days because of the head and shoulders pattern
The Nikkei 225 index is under pressure as investors continue to focus on the recent Bank of Japan (BOJ) decision on ETF buying. It is trading at ¥29,200, which is 4% below the year-to-date (YTD) high of ¥30,720.
What happened: Japan stocks have been in a strong rally recently. Indeed, it is still hovering near the highest point since the 1990s helped by the strong recovery of the Japanese economy. However, in the past few days, the rising bond yields abroad has had a negative impact on the index.
And last week, it dropped after the Bank of Japan said that it would likely stop buying Japanese stocks and ETFs. This is important since the central bank now owns about 7% of these stocks. However, Hurohiko Kuroda attempted to ease these tensions. In an address to parliament, he said that its review of ETF purchases would allow it to continue using monetary policy more flexibly and effectively.
The top movers in the Nikkei 225 index today are Unitika, Mitsui OSK Lines, Mitsubishi, and Marubeni. The top laggards are Kikkoman, Tokio Marine, Nissan Chemicals, and Takara.
Nikkei 225 technical outlook
The two-hour chart shows that the Nikkei 225 index has been in an overall upward trend for months. This saw it form an ascending channel that is shown in black. This month, however, it moved below this channel and dropped to ¥28,280 and then rose by 7.65% to ¥30,490. It then declined last week after the BOJ decision.
It has also moved slightly below the 25-day and 50-day exponential moving averages. Most importantly, it has formed a massive head and shoulders pattern. Therefore, in my view, the index could be starting a major correction that will see it drop to about ¥27,000.
Nikkei index chart
