Nikkei 225 - rally break or turnaround?
After some incredible days for Japan's leading stock index it is time to look at the technical and market breadth data. Will we get a glimpse of what's about to happen next?
Technical situation of Nikkei 225
Technical chart created at tradingview.com
The Nikkei 225 had a breakout and left the bullish flag behind. After three strong trading days, the price is more than 3,8% away from the upper Envelope border (simple version). According to this measurement, the index is still overheated but since the Envelopes are also rising, they will eventually be on the same level again within a couple of trading days.
Even more interesting is the fact that the SMA 20 is now ~6,7 % away and honestly, this is an extreme value. This underlines the strength of the trend, but also creates some worries since we all know that the price tends to come back to the SMA 20 at some point.
The Nikkei 225 managed to overcome the level at 29480 and the barrier at 29685. The next goal would be the last high at 30714, but since the distance to the SMA 20 is so high, it is unlikely that the price will march through. Instead, it is more reasonable to assume that there will be a small bounce back to the areas I mentioned earlier (see purple lines on the chart). Not falling below those levels is considered as a sign of great strength. Even a pull back to 29137 would be something not to worry about if the price will use this level to climb again.
From a technical point of view, the index is overheated and chances are high it will pull back to the mentioned leves.
Market Breadth for Nikkei 225
Above is a screenshot of our market breadth indicator dashboard for the Nikkei 225 index. Regarding the Envelope bands, I think I've already written enough in the technical section of this blog post.
The Advance Decline Line for Nikkei 225 clearly follows the index and shows no divergences.
The Advanced vs. Declined Data for Nikkei 225 follows an invisible trendline and reached an extreme two trading days ago. It is interesting to see that the index still managed to rise, though.
The McClellan Oscillator has been above the zero line for 7 days in a row and still increases, but slows down. The next two trading days will show if we reach a top here.
The McClellan Summation Index clearly rises and rises, confirming the current situation.
From a "market breadth data" point of view, all signals are bullish or confirm the current rally. However, the short-term focused McClellan Oscillator could indicate that a top is forming and a decline is to be expected.
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