Tuesday, December 18, 2012

Nikkei Extends Monday's Gains, Approaches Near-term Resistance

For anyone who remembers New Years Eve 1989 it still amazes to read "edged closer to the 10,000 mark".
Two days earlier, Friday the 29th, the Nikkei set its all-time closing high of 38,915.87.
From Reuters:

Nikkei hits 8-1/2-month high on LDP win, volume highest since March
* Nikkei rises 1.1 pct, Topix up 1.2 pct in active trade
    * Exporters still benefit from LDP victory
    * Investors take profit on utilities after Monday's rally

    By Dominic Lau
    TOKYO, Dec 18 (Reuters) - Japan's Nikkei average edged
closer to the 10,000-mark, hitting an 8-1/2-month high for a
second day on Tuesday, buoyed by a landslide election win for
the conservative Liberal Democratic Party, although investors
took profit on power companies.
    Expectations that Washington will be able to resolve the
'fiscal cliff' -- a combination of spending cuts and tax
increases taking effect in the new year -- also added to the
positive mood in the market.
    The Nikkei rose 1.1 percent to 9,937.44 by the
midday break, taking the index deeper into "overbought"
territory, with its 14-day relative strength index at 81, well
above 70 which is deemed overbought and often indicates a
possible near-term correction.
    The benchmark Nikkei also broke above the upper band of the
Bollinger Bands, a short-term momentum indicator, also
signalling a possible pull back in the short-term. 
    "At this stage, we've seen some profit-taking in utilities
after a huge move they made yesterday. The yen-sensitive,
LDP-trade is still in full effect, with volume remaining very
good considering the quiet period of the year," a senior dealer
at a foreign brokerage said....

And from CNBC:
Nikkei Rally to Run Into Resistance Soon: Chart
Japan's benchmark stock index the Nikkei has had a great past one month rising more than 12 percent in the run up to the Japanese polls on December 16. On Monday, a day after the opposition Liberal Democratic Party won a comprehensive victory, the index hit an eight-and-a-half month high.

But the index has two resistance levels that cap the current rally breakout. The first resistance level is near 10,200. This is a shorter term resistance level that developed from the two rally peaks in July 2011 and March 2012.

The longer-term resistance is created by the peak high in February 2011. This high, and the low in March 2009 have created a very wide trading band. The Nikkei has been trapped within the confines of this band for three years. Recently, starting in July 2011, the activity has been defined by a narrow inside band with support near 8,300 and resistance near 10,200.

The current rally has a high probability of retreating from resistance near 10,200. The downside support level is near 9,000.

If the market is able to move above 10,200 then the resistance is near 10,600. There is a low probability of the market moving above the long-term resistance level....MORE
The writer is more pessimistic over the medium term than we are but either way the last four weeks mark a decisive chenge in market psychology.