File picture: Alex Grimm

Johhanesburg - Tokyo’s Nikkei 225 index tested a critical 18-year resistance line a few months ago, but was unable to break it.

Whether it can still break it remains to be seen, but right now this index is looking vulnerable.

Nikkei 225 Index

Investment Strategy: Reduce holdings/sell.

Long-Term Trend: Sideways to down.


- The Nikkei rebounded off line 2 critical long-term resistance at a few months back.

This is its main bear market resistance line, going back to 1996.

- It’s monthly stochastic (on top) is giving a negative divergence from its overbought region, which is warning of more downside to come.

- It is currently holding a level of support at line 3 (14 000).

If it breaks this critical support level and closes below it on a monthly closing price, it will confirm further significant selling off.

- Investors should reduce holdings in Japanese stocks, or even sell completely.

Japan will only be buyable again if the Nikkei can either significantly sell-off to lower levels, or if it gives a clear break-out and close above line 2 (16 200) on a monthly closing basis.

If that break-out happens, there will be massive upside potential in the long term.

Colin Abrams is an independent technical analyst.

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