Nikkei forecast for the week of August 24, 2015, Technical Analysis

The Nikkei had a very bad week, slicing through the ¥20,000 level. We still believe that there is a significant amount of support just below though, especially at the ¥19,000 level. With this, we are waiting to see if we get a supportive candle that we can continue to buy. After all, we do believe in the longer-term uptrend in the Nikkei as the Bank of Japan will work against the value of the Japanese yen, and of course step into the marketplace and support stocks directly through ETFs. Ultimately, we believe that any type of supportive candle near the ¥19,000 level is reason enough to start going long, and that we should eventually break out above the ¥21,000 level. Once we do, we feel that this market will continue to go much higher, probably aiming for the ¥25,000 level which is our longer-term target.

Keep in mind that the Nikkei 225 is highly influenced by exports, and that demands a lower valued Japanese yen. This is why the Bank of Japan is presently stepping into the marketplace and buying Japanese Government Bonds. By lowering the interest-rate available, this dry sump the demand for bonds going forward, especially by a foreign investors. This means that demand for the Japanese yen drops. The knock on effect of that is that a cheaper Japanese yen means that Japanese products from companies such as Sony, Canon, and Mitsubishi are all cheaper in other countries around the world. With this, it means higher profits for Japanese companies, and you can see that the entire circle completes.

With this, we don’t really have any interest in selling, at least not until we break down well below the ¥19,000 level. We don’t think that’s going to happen, but we are cognizant of the possibility of such action. We still believe in the uptrend, even though this weekly candle has been so bad. Keep in mind that the liquidity in the marketplace is very thin at the moment, as we are towards the end of vacation season. This of course could have exacerbated the entire situation.