Nikkei 225 Index Ripe for a Bullish Breakout to ¥24,000

The Nikkei 225 index is up by 0.40% ahead of key corporate earnings in the United States. The index is trading at ¥23,663, which is in the same range it was yesterday.

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The ongoing earning season in the US has been relatively stronger than what analysts were expecting. Yesterday, companies like Procter & Gamble, Texas Instruments, Philip Morris, and Lockheed Martin released results that were better than expected.

The only laggards were companies like Netflix, a FAANG member that reported disappointing membership numbers. Today, the market will react to results from Tesla, Verizon, Abbott Labs, and Crown Castle. While these are American companies, they provide an important gauge of the performance of Japanese companies.

The Nikkei 225 is also rising on hopes that Japan and China will have a closer relationship during Yoshihide Suga’s premiership. Indeed, the two countries are set to sign a deal to allow businesses to restart travel this month.

In a statement, Japan’s Chief Cabinet Secretary said, “Japan and China are extremely important neighbours to each other and there had been many reciprocal trips before the outbreak of the coronavirus.” In recent past, Japan has signed bilateral reopening deals with Singapore, Vietnam, and South Korea.

Still, the main challenge for Japan is that its economy is recovering at a slower pace than in other countries. For example, its manufacturing PMI has not crossed the 50 level this year.

The biggest gainers in the Nikkei 225 index are Takara Holdings, Japan Steel Works, NSK, and Tokyo Dome, among others. These shares have risen by more than 5%. On the other hand, the worst-performers are NEC Corp, Olympus, Yahoo Japan, and Terumo Corp.

Nikkei index technical outlook

The four-hour chart shows that the Nikkei index has been in a relatively tight range recently. It is trading at ¥23,663, which is a few points above the 25-day and 15-day exponential moving averages. As a result of the sluggish movement, the average true range (ATR) has fallen to the lowest level in months. It has also formed an ascending triangle, which is nearing its confluence zone.

The low volatility levels and the confluence of the triangle pattern are a sign that the Nikkei 225 index will breakout in the near term. Since an ascending triangle is usually bullish, it means that the price will attempt to test the ¥24,000 resistance level. On the flip side, a move below the psychological level of ¥23,000 will invalidate this trend.

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Nikkei 225 index technical chart

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