Nikkei 225 breaks above a downside resistance line

The Nikkei 225 cash index has been in a rally mode since March 15^th, when it hit support near the 25180 zone. Overnight, during the Asian session today, the rally took the index above the downside resistance line drawn from the high of January 5^th, and although it paused near the 26730 zone, it stayed above that line. Thus, we will consider the short-term outlook to have turned cautiously positive for now.

Following the test near 26730, also marked by the high of March 3^rd, we may see some further retreat for now. However, we see decent chances for the bulls to take charge again from near the 26245 zone, which provided strong support back on February 28^th and March 2^nd. A rebound from that area could result in another test near 26730, the break of which could aim for the 27000 zone, marked by the high of February 28^th. If investors are not willing to stop there either, then we could see larger advances, perhaps towards the 27570 zone, defined as a resistance by the peak of February 16^th.

Shifting attention to our short-term oscillators, we see that the RSI, although above 70, has turned down, while the MACD, even though above both its zero and trigger lines, shows signs it could soon top as well. Both indicators suggest that the index may start losing its strong upside momentum, which is inline with the view of a possible setback before the next leg north.

In order to abandon the bullish case and start examining whether the bears have gained the upper hand again, we would like to see the setback extending below the 25755 zone, which is marked by the inside swing highs of March 10^th and 11^th. This may confirm the index’s return back below the aforementioned downside line, taken form the high of January 5^th, and may allow declines towards the 25180 area, or the 24960 barrier, which provided support on March 11^th. If the bears do not stop there, then we may see them diving towards the low of March 8^th, at 24490.