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Nikkei 225 savage rally fades below key resistance; what next?


The Nikkei 225 index rose by about 20 points as the market remained optimistic about the recovery of the world economy. Investors were unfazed by a sudden spike in new coronavirus cases in Tokyo. Similarly, other Asian indices like the Hang Seng, Shanghai Composite, and KOSPI also rose.

Nikkei 225 momentum eases

While the Nikkei 225 rose today and is now close to a three-month high, the momentum seen a few days ago has slowed down. This is partly because some investors have started to take profit. It could also be because there was no major corporate news today.

Among the best-performers in the index was Shionogi, a pharmaceutical company. In a statement, the firm said that it hoped to start supplying a vaccine against coronavirus in January. The first phase of the supply will be to healthcare workers. The company is developing this vaccine by making protein antigens using insect cells and other components. It has partnered with the National Institute of Infectious Diseases.

Shionogi is not the only company currently developing a vaccine. In the UK, AstraZeneca is developing several vaccines after receiving about a billion dollars from the US. Similarly, Sanofi and other major pharmaceutical companies are doing the same.

Shares of Shionogi were up by 30 basis points.

Best and worst performing companies

The best-performing company in the Nikkei 225 was SKY Perfect JSAT, that provides satellite communication services. The shares rose by almost 6%. It was followed by Taiyo Yuden, Nissan Chemicals, Marui Group, Tokio Marine and Daiwa House Industry. These firms rose by more than 2%.

On the other hand, the worst-performers were Dentsu, Nippon Sheet Glass, DeNa, Toray Industries, West Japan Railway, and Impex Corp that fell by more than 2%.

Other notable companies in the Nikkei were Softbank, whose shares rose by more than 1%. This was after the company announced a new $100 million fund to support minority companies in the United States. Sony shares rose by more than 1% while Toyota rose by 50 basis points.

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Nikkei 225 technical outlook

On the daily chart below, we see that the Nikkei 225 upward momentum has waned, and it seems to be forming a small hammer pattern. It is trading at ¥22,721, which is slightly below the day’s high of ¥22,874.

The price is still above the 100-day and 50-day exponential moving averages and is above the 78.6% Fibonacci retracement level. Also, the RSI has soared to the overbought level. Therefore, I expect the index to decline slightly as bears attempt to retest the 78.6% retracement at ¥22,472.

On the flip side, a move above the important psychological level of ¥23,000 will mean that there are more buyers, who will be keen to push it higher.