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Nikkei 225 Index May Drop Below 31,000 Points – Here’s Why

Nikkei 225 Index (INDEXNIKKEI: NI225) is showing a good recovery after an intense sell-off this month. The index still stands 5.6% below its yearly peak. The pullback occurred after the benchmark of Japanese equities surged to its highest level in 34 years in June 2023.

On Tuesday, the Japanese chips and bank stocks extended their gains. This led to a rise in the benchmark index, which closed the day 0.92% higher than its previous close. The positive sentiment in the Japanese stock markets can be attributed to a rebound in the US stocks.

Chinese Economy Generates Headwinds For Asian Stocks

The Asian equities are currently facing headwinds due to the piling up of weak economic data from China. The world’s second-biggest economy has started to experience deflation instead of recovering to its pre-lockdown levels. This has triggered a sell-off in Japanese stocks as well.

The latest technical analysis reveals that the Nikkei 225 index may drop more before a strong rebound. The ongoing bounce could be due to the recovery in the S&P 500 index and the Nasdaq 100 indices.

Nikkei 225 Index Forecast

Considering the bullish market structure on the following chart, my long-term Nikkei 225 index forecast remains bullish. However, in the short term, the index must flip the 30,840 resistance level into support in order to aim more upside.

The index currently stands at 31,856. In the coming days, it may retest the above-mentioned level to turn it into support. If the index goes up from here, this retest will remain on the cards. Considering a strong sell-off in the US stocks in the past few weeks, I’m waiting for a bullish reversal signal before going long again.

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Nikkei 225 Index chart