JPN225 reaches highest level in almost 33 years, but is overbought in the near-term

Comment

The JPN225 is trading at its highest levels since August 1990. It is up over 6% month-to-date and up over 16% over the last 12 months.

Monthly Chart Analysis

Source: www.tradingview.com

• From the June 2012 low, the JPN225 has charted a series of higher troughs followed by higher peaks.
• This puts the monthly chart into uptrend.
• The higher trough, HT*, was validated by the higher peak, HP*.
• This has allowed the trendline to shift to a higher gradient from the tentative green trendline to the tentative orange trendline.
• This denotes an increase in momentum as measured by the trendlines.
• If the orange trendline is touched and respected a third time it will be regarded as a valid trendline.

Weekly Chart Analysis

Source: www.tradingview.com

• The weekly JPN225 has charted a higher trough (HT) followed by a higher peak (HP).
• This puts the weekly chart into uptrend.
• The index is currently positioned at overhead resistance (red shaded horizontal).
• The resistance zone is from 30,720 to 31,000.
• Since February 2021, price has tested this resistance zone three times.
• It reacted off resistance in February 2021 (first green vertical) and then in September 2021 (second green vertical).
• Both times, JPN225's RSI dropped to the bearish side of 50 (blue rectangles), suggesting a waning in the upside momentum.
• The current high is the third test of this resistance zone.
• JPN225's RSI is at 77, which is close to the overbought level of 80.
• This might give strength to the resistance zone in the near-term.
• However, if the RSI can maintain on the bullish side of 50 (green rectangle), the underlying momentum will remain bullish.
• The longer RSI remains above 50, the greater the likelihood that JPN225 will hold its uptrend and breakout above the red shaded horizontal.

Daily Chart Analysis

Source: www.tradingview.com

• Higher peak, HP1 validated higher trough, HT1, allowing the tentative and shallow green trendline to be drawn.
• HP1 also validated HT2, allowing the steeper orange trendline to be charted.
• The orange trendline has been touched four times and is regarded as a valid trendline.
• It also reflects an increase in the daily period's momentum.
• Higher peak, HP2 validated the higher trough, HT3.
• This allowed the steepest red trendline to be drawn.
• It connotes a further increase in the daily trend's momentum but a third trendline is also suggestive of an overbought condition.
• This is corroborated by the RSI, which is overbought at 86 (blue rectangle).
• The last time the RSI was over 80 and overbought (red vertical), a decline of over 5% ensued.
• We think that the daily timeframe will need to either pullback or move sideways from here to expel the current froth.
• This will allow the uptrends from the higher timeframes to meaningfully influence direction.

Image by Jordy Meow from Pixabay