The Nikkei 225 is tumbling today but technicals point to a sustained rally

After being the best-performing index in Asia yesterday, the Nikkei 225 index is in trouble today. It is down by more than 0.55%, becoming the worst-performing index in Asia. Its peers like Shanghai, A50, and hang Seng have dropped by less than 20 basis points.

Japan stocks slump as trade slumps

There was no immediate catalyst for the Nikkei 225 underperformance. Still, the easiest way to explain it is to look at the trade numbers released by the ministry of finance. In a report earlier today, the ministry painted a picture of an ailing Japanese economy.

The country’s exports declined by 28.3% in May, the worst performance in more than a decade. Similarly, exports declined by more than 26.2% in May, reflecting a weak domestic and international market. In total, Japanese exporter sold goods worth more than $39 billion in May while importers bought goods worth more than $40 billion. These numbers are important for the Nikkei 225 because most companies in the index are involved in both exporting and importing.

The auto sector was incredibly affected. For example, the sector’s exports declined by 64.1%, which is the biggest fall since 2011. The 2011 decline was because of the massive earthquake and tsunami. Similarly, auto parts also declined, with exports falling by 57.6%. Worse, the ministry warns that the situation will continue. In a statement to reporters, a ministry official said:

“It’s hard to predict upcoming developments, but given the current domestic and overseas situation, the virus impact will likely continue to be seen on exports and imports figures in June.”

Nikkei 225 top movers

Most companies in the Nikkei 225 are in the red today. The worst-performers are JTEKT Corp, Taiheiyo Cement, Nippon Suisan, Mazda, Toyobo, and Yamaha. All these declined by more than 4%. On thre other hand, technology companies like Yahoo Japan, Softbank, and Sony were the biggest gainers. The three rose by 6.25%, 5.12%, and 2.75% respectively.

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Nikkei 225 technical analysis

The Nikkei 225 index is trading at ¥22,462, which is along the 78.2% Fibonacci retracement level. On the daily chart, the price is above the 50-day and 100-day exponential moving averages and slightly below the important resistance level at ¥22,700. The price is also on an upward trend as evidenced by the ascending trendline that is drawn by connecting the lows on April 22, May 15, and June 15. This means that the upward trend will remain as bulls attempt to move past this month’s high at ¥23,212.

On the flip side, a move below ¥21,498 will mean that there are more sellers in the market. This price is the lowest level on Monday and also along the ascending trendline.

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