The Japan 225 stock index has recently experienced a significant downturn, dropping by 21% to a 10-month low of 30,361. This decline has been attributed to recession fears in the US and a bullish cycle of the yen. From a technical perspective, the index has fallen below its 200-day simple moving average, marking its sharpest correction since the pandemic began. Despite some brief recovery, the index closed the day around 33,336, with potential support at the 161.8% Fibonacci extension of the April-July upleg.
To reach the 35,470 barrier, the index will need to surpass the resistance line at 33,585. Further obstacles lie ahead at April’s low of 36,692 and the 200-day SMA before hitting the psychological mark of 38,000. Both the RSI and the stochastic oscillator indicate oversold conditions, suggesting that the bearish momentum could be nearing exhaustion. However, a close below the 33,130 region could delay any recovery attempts, shifting focus to the ascending trendline connecting the 2020 and 2023 lows at 31,400.
In the event of continued selling pressure, the index may revisit the October double bottom area of 30,300. The 29,300 region could serve as a key pivot point in determining future price movements. It is crucial for the index to break above the 33,585 level in order to alleviate selling interest and potentially initiate a recovery. Unless this key resistance is breached, the index may struggle to regain its footing and could face further downside pressure in the coming trading sessions.