Nikkei May Lose Its Breakout Momentum While The Hang Seng Nears Its Own Trend Change

Index Strat Risk Target NKY Short 9,125 7,750 ASX Short 3,860 3,390 HSI Flat

Nikkei 225

Short-Term Technical Outlook

Bears’ chance to force the Nikkei 225 into a sharp reversal may be slipping away from them. After Tuesday’s break from a very conspicuous, rising wedge formation; the Japanese benchmark failed to produce any meaningful follow through and instead marked an inside day candle formation. In effect, the push from yet another technical pattern (we are following up on the break from the rising trend that was curbed last week) has merely developed into a wider range. However, congestion this tight (somewhere between 9,000 and 8,700 cannot last long for a market this volatile. For our bearish sentiment to fully develop, we will need to see a close below the rising 20-day SMA and some semblance of follow through.

Long-term Technical Outlook

As mentioned for the last few weeks, a multi month low is in place and what is most likely a corrective advance is underway. An initial objective is the 38.2% of the decline from 18297-7029 at 10130. As the pattern unfolds, we’ll be able to better pinpoint likely potential resistance. The short term trend is up as long as price is above 8088.

S&P/ASX 200

Short-Term Technical Outlook

Like the Japanese index, the S&P/ASX 200 has dropped the ball on what could have been a dramatic reversal. While Wednesday’s marked the third consecutive, bearish close for the Australian market; the session’s low would not venture below the previous session’s floor. Follow through is essential to developing a true trend reversal from the failed run on 3,800. A bounce over the next few days without first putting in a new low would dramatically lower the possibility of seeing a true bear wave extend off of what has otherwise been a sharp turn.

Long-term Technical Outlook

The S&P/ASX is in the exact same position as the Nikkei. The rally above Elliott channel resistance and 3579 confirms that 5 waves are complete from the 2007 high. Near term, the trend is up as long as price is above 3547. Long term Fibonacci resistance does not begin until 4174.

Hang Seng

Short-Term Technical Outlook

The Hang Seng’s reversal has grown legs. The index is now at the next major milestone for a true trend reversal. Tuesday’s close led the market to test the floor of a rising trend channel that has evolved since early March. We will look for a clear break of this rising trendline to establish a bearish, medium-term bias. However, this level is loosely defined by this technical bearing as we are only now working on the third confirmed test of the line. Nonetheless, it is a good measure of price action along with the rising 20-day SMA. A close below this technical confluence would be a strong signal for a bearish bias; but it is important to note that trend reversals sometimes take a few days to confirm for this highly volatility index.

Long-term Technical Outlook

A multi month low is also in place for the Hang Seng. The drop from 15781 is in 5 waves but failed to end below the wave 3 extreme at 10676. Still, the strong bullish evidence present in the other Asian indexes suggests that the likely path for the Hang Seng is higher. As such, I am labeling the decline from 15781 as a truncated 5th wave. The short term trend is considered up as long as price is above 13412.

Written by: John Kicklighter and Jamie Saettele, Strategists for CFDTrading.com
Questions? Comments? You can email them to John at <[email protected]>.