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

  • JPN225


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


  • 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


  • 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


  • 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

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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