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Nick Goold

Technical analysis

The Nikkei 225 continued to push higher last week, however as indicated in last week’s report the market was due for a fall. Weak economic figures from China and the release of U.K. inflation figures which were the highest in 40 years saw risk-off sentiment increase.

A large fall was seen on Friday after Fed officials raised the possibility of a 0.75% rise in official US interest rates in September. Higher interest rates reduce the profits of companies and triggered a large fall in the Dow which negatively impacted the Nikkei 225.

Bollinger bands are a very popular indicator for many traders in Japan. A Bollinger band takes a moving average and then adds a band above and below using a calculation based on volatility. When the Bollinger band touches the top band the market is likely to fall and return to the moving average and the reverse if touching the bottom band. As you can see from the chart below the Nikkei 225 has been touching the top band for the past week indicating a fall was likely.

Daily Nikkei 225 with Bollinger bands

This week we could see more weakness in the Nikkei but with the weak yen, there could be some good buying opportunities this week. Previous resistance at 28,650 and 28,400 will become support along with the 10-day moving average. Volatility is still high though so if you buy and support breaks it is important to limit your losses.

Resistance:29250, 29400, 30000
Support:Support:28650, 28400, 28000, 27500, 27000, 26000, 25500, 25000

Foreign trader influence on the Nikkei 225

The impact of foreign investors on the movements of the Nikkei is very important to understand. Once you understand why the Nikkei 225 is moving you are more likely to be able to find profitable trading opportunities. The ratio of Japanese stocks held by foreign investors (corporations and individuals) is around 30%.

The impact on foreign investors is very large on the daily movements of the Nikkei 225. Foreign investors watch related markets like the Dow Jones index and Chinese stock markets. Especially in the short term the Nikkei 225 follows the US equity market trends.

There are profitable trading opportunities when the Nikkei 225 follows the Dow Jones too much. For instance, in the first half of 2022 US equities fell considerably but with the weak yen, Japanese companies were making good profits so there were profitable opportunities to buy the Nikkei 225 when it fell to support.

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