The Nikkei 225 index declined by more than 100 basis points as reality of the coronavirus pandemic started to set in. Most companies in the index were in the red, with Shinsei Bank and Mazda Motor shares falling by more than 5%. Other top laggards were Kuraray, Sumitomo Heavy Industries, Sumitomo Metals, Nissan Motor, Asahi, and Honda among others. The best gainer in the index was DeNA, and Sumitomo Osaka Cement, which rose by more than 4%.
There are two primary reasons why the Nikkei 225 index declined today. First, it was probably a reaction to the weak performance in the United States, where the Dow Jones lost more than 400 points. This was partly a reaction to the weak data from the US and the disappointing earnings data from US banks.
Second, it was due to a report by the Nikkei, which said that the government was expected to offer a bleak assessment of the economy. In the report, the government is expected to say that the economy is “worsening sharply” because of the coronavirus shutdown. This will be the bleakest assessment by the government in over a decade.
This report will come a week after the government declared a state of emergency and a new stimulus worth almost $1 trillion. In another report by Reuters, most Japanese firms said that the stimulus was not enough and that it came too late. This is an indication that most companies in Japan are under pressure.
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Nikkei 225 Technical Analysis
Looking at the daily chart, the Nikkei 225 has been on an upward trend since bottoming at ¥16,280 in March. Since then, the index has rallied to Tuesday’s high of ¥19,681, where it found significant resistance. It is now trading at ¥19,330, which is along the 38.2% Fibonacci Retracement level.
This Fibonacci was drawn by joining the highest and lowest points in March this year.
I expect the index bullish trend to continue if it manages to break past the Tuesday’s high of ¥19,681. If this happens, I expect the index to test the 50% retracement level at ¥20,182 and possibly continue rallying.
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