Nikkei signals flash bearish as BOJ hawkish bets buildA bearish engulfing candle on our Japan 225 contract coincides with an obvious three-candle evening star pattern in futures, delivering a double dose of bearish signals that point to growing downside risks for Japanese stocks.
Currently, long-running uptrend support dating back to the April lows and the 50DMA are in close proximity beneath where the contract trades, making that a key support zone to focus on should the signals from the price action prove reliable.
If we see a clean break and close beneath the zone, it would allow for shorts to be established with a stop above the 50DMA to protect against reversal, targeting 48,400 support initially. If that gives way, 47,000, 45,170 and 42,000 were levels that saw plenty of price action either side earlier in the year, putting them on the radar as targets should we see a sustained unwind.
Of course, if the support zone comprising the 50DMA and uptrend support holds, it would allow for long setups to be considered, targeting 50,580 and 51,500 resistance initially. A stop beneath the 50DMA would protect against reversal.
RSI (14) and MACD are delivering neutral signals, a departure from what was seen in recent months when upside strength was dominant. While both indicators are gradually moving towards bearish territory right now, the preference remains to let price action and signals determine how to proceed.
Good luck!
DS
Short
