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    Technical Analysis NIKKEI : 2016-06-07

    Japanese GDP data to affect Nikkei index

    The Japan’s Prime Minister Shindzo Abe said last week the sales tax hike was postponed for 2-1/2 years, from spring 2017 to autumn 2019. The move shall support the Japanese economy which has already showed strong growth in Q1 2016. The significant economic data are expected in Japan this week. Will the Japan’s Nikkei index advance on the news?

    Nikkei index has lost 13% since the start of the year while European indices are almost flat and US advanced almost 3%. Meanwhile, Japanese GDP rose in Q1 by 1.7% year on year, European by 1.5% and US by 0.8%. Moreover, the final Japan’s GDP for Q1 2016 will come out this Wednesday. It may be revised up to 2%, according to the forecasts. The weak factory orders for April are anticipated on Thursday which may have negative effect on Japanese stock market. Nevertheless, even the ongoing economic expansion outpaces the one in Europe and US. The delayed sales tax hike may give additional boost to Nikkei index. For the first time in 17 years the tax was hiked on April 1, 2014 from 5% to 8%. It shall be of 10% in 2019. Nikkei market capitalization is 7 times below the one of S&P 500 and 4 times below the one of Stoxx Europe 600. In theory, this may raise the index volatility.



    On the daily chart Nikkei: D1 is rising since mid-February. On Friday it reached the support but failed to break through it and edged up. The MACD and Parabolic indicators give signals to sell. RSI is below 50, no divergence. The Bollinger bands have narrowed a lot which means extremely low volatility that may take place before the strong movement. The bullish momentum may develop in case the Nikkei surpasses the last fractal high, the Bollinger band and the Parabolic signal at 17250. This level may serve the point of entry. The initial risk limit is possible below the support of the uptrend and the Bollinger band at 16250. Having opened the pending order we shall move the stop to the next fractal low following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 16250 without reaching the order at 17250 we recommend cancelling the position: the market sustains internal changes which were not taken into account.


    Position Buy
    Buy stop above 17250
    Stop loss below 16250

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