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Rising External Demand May Lift Nikkei

Rising External Demand May Lift Nikkei

The Bank of Japan left the deposit rate at minus 0.1% at April 27 policy meeting and governor Kuroda said the central bank is nowhere near an exit from its massive 80 trillion yen annual stimulus. Will Nikkei continue rising?

Japan’s economy has improved as exports rose the most in over two years in March and manufacturers’ confidence hit the highest since the global financial crisis a decade ago. In its most optimistic assessment of the economy in nine years, BOJ stated “Japan’s economy has been turning toward a moderate expansion”, with policy makers forecasting a pick-up in overseas demand will help sustain an export-driven recovery. But downside risks remain with economic growth dependent mostly on external demand while household spending is not recovering due to slow wage growth and inflation currently around zero percent.

Nikkei Daily Chart

On the daily chart, the NIKKEI: D1 has been retracing higher last couple of weeks. The price has closed above the 50-day moving average MA(50).

  • The Donchian channel indicates an uptrend: it is tilted up.
  • The Parabolic indicator gives a buy signal.
  • The MACD indicator is below the signal line and the gap is narrowing, which is a bullish signal.
  • The stochastic oscillator is in the overbought zone, which is bearish.

We believe the bullish momentum will continue after the price closes above the upper Donchian bound at 19303.20. A pending order to buy can be placed above that level. The stop loss can be placed Parabolic signal at 18454.9. After placing the pending order the stop loss is to be moved every day to the next fractal low, following Parabolic signals.

Thus, we are changing the probable profit/loss ratio to the breakeven point. More conservative traders can switch to the 4-hour chart and move the stop-loss in the direction of the trade. If the price meets the stop loss level (18454.9) without reaching the order(19303.20), we recommend cancelling the position: the market sustains internal changes which were not considered.

Summary of technical analysis:

Position: BuyBuy stop: Above 19303.20Stop loss: Below 18454.9

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