The Nikkei 225 index is up by more than 1% in a relief rally that follows a recent plunge of Japan stocks. It is trading at ¥28,730, which is still 8% below the year-to-date high of ¥30,728.
What happened: Recent economic numbers have been positive for Japan. In a report yesterday, IHS Markit said that the country’s manufacturing PMI rose to 52 in March, the highest reading in more than a year. The important services PMI also increased from 45.8 to 46.5, which is still below the expansion zone of 50. Still, these numbers are positive for the economy.
The Nikkei 225 recent weakness is mostly because of the decision by the Bank of Japan (BOJ) to signal that it would stop buying ETFs tied to the country’s stock market. This has made it the biggest holder of these stocks since it now owns about 7% of all stocks listed in the country.
Most Nikkei index constituents are in the green today. The top laggards are companies like Hino Motors, Softbank, Isuzu, and Advantest Corp. These shares have all fallen by more than 2%. On the other hand, the top gainers in the index are Mitsui Mining, Konica Minolta, Minebea, and Tokyo Electric, among others.
Nikkei 225 technical forecast
The four-hour chart shows that the Nikkei 225 index has formed a head and shoulders pattern. Indeed, it has already moved below the neckline of this pattern. It has also moved below the 25-day and 15-day exponential moving averages (EMA) while the stochastic oscillator has started to decline. Therefore, the index may keep falling as bears target the next key support level at ¥28,000, which will be almost 10% from its highest level. A move above ¥29,500 will invalidate this prediction.
Nikkei index chart