Falling Sun in the Land of the Rising Sun

The Japanese stock market got hit really bad because of the financial crisis that is currently haunting the US. Being one of the biggest trading partner with US, the Japanese crisis actually started a a few months earlier. Whole most markets started to fall in Octber 2007, the Japan market starts to fall in July last year. So, it was Japan that starts the domino effect of the financial crisis.

Just about a year ago, the Japan benchmark index, the Nikkei 225 was twice the current level. The Nikkei 225 closed at 10,155.90 points, after breaking the 10,500 points technical support level a day earlier. The benchmark index just cruised through the support level. How low can the Nikkei225 go?

Technically, the Nikkei225 broke all possible support level from the bull trend that started from year 2003 when the index was about 7,500 points. The bears have basically slaughtered the bulls which have dominated for about 4 years in 1 year! The trend is extremely bearish as the short term 30-day moving average is currently at 11,900 points. This means that the index is currently 14.6% below the average and this is very oversold. A technical rebound is expected at the next safety net (support level)

The next possible technical safety net would be 8,800 points based on a cluster of Fibonacci expansions from the October 2007 to March 2008 down trend. Resistance is at 11,600 points.


Daily Nikkei225 chart as at 7 October 2008 using NextView Advisor

Commentary and Analysis by Benny Lee