Nikkei 225: 13,000 holding, Market Unconvinced of Abe's Plan

Price traded higher yesterday, reversing the losses suffered on Monday and managed to etch out a slight gain during the early US trading session. However, 13,700 remains stubborn and refused to give way, sending price slightly lower during Asian session today. However the real culprit that pushed price sharply lower today wasn’t due to the decline in US stocks which closed lower with S&P 500 losing 0.55% and Dow by 0.50%. The main driver for today’s drop of 3.83% by the underlying stock index is none other than Shinzo Abe himself.

The “Abenomics” namesake failed to revitalize the market which his speech today, but instead sent traders scrambling to sell the highly overextended stocks after his latest media appearance show that there isn’t really much more stimulus plans within his Abenomics docket that could help to push price higher. Instead of providing any further improvement to policy measures, Abe resorted to allegories, saying that he will “slay the deflation monster” without really saying how he truly intent to do so beyond what is already offered previously. His entire speech is littered with open ended statements such as “removing barriers to corporate activities in private sector”, “special strategic zones”, “high density construction” to name a few. These jargon filled statements did not offer any new ounce of insights, but make Abe sound like someone who is totally out of ideas and have to resort to such non-committal statements to help prop the economy higher. Market is certainly unconvinced of Abe’s “monster slaying” skills apparently, and pushed price in Nikkei sharply lower.

Monthly Chart

This move back towards 13,000 allowed the Monthly candle to look bearish once more, an important development for the formation of the Evening Star pattern to take shape. Certainly now is still too early to tell, but we’re definitely in the right direction currently and should price manage to maintain this way till the end of the month, we could potentially see the unraveling of price all the way back to the 38.2% Fib retrcacement.Sentiment of the market is shifting from a bullish one to a bearish one, with Open Interest of N225 futures the highest in 5 years, suggesting that this bearish trend is backed by strong volume, an important feature for any trend reversal to have strong follow through.

Hourly Chart

However, the setup is not complete, and 13,000 is still proving itself to be a strong nut to crack. Short-term chart shows that price has bounced from the descending trendline and is currently seeking 13,700 once more, with 13,370 standing in its way. Short-term bullish acceleration may occur if the aforementioned level is broken, but clearing 13,700 under such strong short-term bearish backdrop will be another issue entirely. Stochastic reading suggest that price will be able to sustain current bull run with the stoch line aiming up with the distance between Stoch/Signal widening – sign of increase bullish momentum. Nonetheless, with European stocks and US futures both trading lower right now, it remains to be seen whether this short-term bullish momentum will be able to withstand the risk-off appetite that is currently seeping in globally.

Fundamentally, current prices of Nikkei 225 component stocks are highly expensive at current value. With confidence in Abe leaving, we are in good position to potentially see price starting to collapse like a deck of cards. If Abe wants to stop the slide, he will need to introduce new plans moving forward. Mere words are not going to cut it anymore.