The Nikkei 225 index, also known as Japan 225 on FXOpen, has shown a significant upward trend in recent weeks as indicated by the blue channel on the chart. The price surged above 42,500 points on 10th July, marking a yearly high. However, the gains from 9-10 July were completely offset as the bears made a strong comeback, pushing the price back to the 41,160 level. This created a bearish engulfing pattern spanning 4 candles, raising concerns about the authenticity of the breakout above 41,160.
Bearish Drivers and Market Sentiment
Bearish sentiment in the Japanese stock market was fueled by declines in technology stocks such as Tokyo Electron, which saw a more than 6% drop in one day following sell-offs in US technology stocks. Additionally, fears of interventions by the Bank of Japan to support the yen have also weighed on market sentiment. These factors have contributed to the uncertainty surrounding the Nikkei 225 index.
Technical analysis of the Nikkei 225 reveals that the price is still within the upper half of a significant ascending channel that originated in 2023. There is no conclusive evidence yet that the price is consolidating below the 41,160 level, but there is a possibility that the bears could break below the median of the blue channel and consolidate below this level. This could lead to the formation of an important descending channel for the index, indicating a potential break of the lower boundary of the blue channel in the second half of 2024.
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