Nikkei 225 moment of reckoning as Japan stocks hit key support

Japan stocks were among the worst-performers in Asia today. The blue-chip Nikkei 225 index declined by more than 1.80% as the market continued to worry about the economy. Other Asian indices like Shanghai, Hang Seng, and A50 also dropped by more than 1%.

Nikkei 225 drops as global outlook dampens

The main reason why the Nikkei 225 index fell is that the market is worried about the health of the global economy. Just yesterday, Jerome Powell, the Fed president warned that the US path to recovery would be long.

The market is also worried about the simmering trade tensions between the US and China. On Tuesday, the Trump administration asked the government pension organization not to invest in Chinese stocks. This sent shockwaves in China, where officials condemned the actions by the administration.

Japan stocks are also declining because of a failed virus test that is being used in the US. The test developed by Abbot Laboratories missed about 48% of positives in one test. This raised the probability that more people in the US had the disease.

Also, there are concerns that Japan could be in lockdown for a longer period than expected. While most states will start exiting the state of emergency this week, the reality is that the big cities like Tokyo and Kyoto will remain in a lockdown.

Most Japan stocks slide

Most companies in the Nikkei 225 were in the red today. The worst performer was Daiwa House Industry, whose stock fell by 10.70%. It was followed by Mitsui Engineering. Ricoh, and Mitsui Chemicals, which dropped by more than 7%.

Only 18 companies in the Nikkei rose today. The best performer was Daiichi Sankyo, whose stock rose by 4.6%. It was followed by Takeda, Nicherei, and Eisai. Takeda stock rose after a strong quarter and also because of its research on coronavirus.

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Nikkei 225 technical forecast

On the daily chart, the Nikkei 225 index has been on an upward trend, being guided by the pink trendline shown below. Today’s decline took the index to this line, which is along the 50-day EMA and slightly below the 50% Fibonacci retracement level. Therefore, a close below this line will signal that there are more sellers in the market, who will be keen of testing the 38.2% retracement at 19,311.

On the other hand, a move above 20,530 will invalidate the bearish thesis. This is mostly because it will signal that there are more buyers who can keep supporting the index.

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