Japanese Nikkei showed record growth in 6-1/2 years last week amid the record weakening of yen in recent 17 years. This improves financial performance of Japanese exporters. Nikkei was also supported by global trend of stock prices increase. US stocks market increase S&P 500 hit a fresh historical highs a couple of times already.

It has advanced 5.7% since start of this year already while Nikkei is still 13.3% below its level at start of 2016. The Japanese index in dollars is still 1% below the start of the year. As we see, Nikkei under-performs a lot. Will it continue advancing?

Р/Е ratio (total stocks price to total earnings per year) for S&P 500 is being around 20 now. For Nikkei it is 17. Judging by several other comparative figures, Japanese stock market index also looks better than the US one. Coalition of incumbent PM of Japan Shinzo Abe won elections to the upper chamber of Parliament last week. Abe said he will go on with monetary stimulus of the economy, the program investors call Abenomics.

Now market participants expect specific measures from Bank of Japan which may be announced on the next BoJ meeting on July 28-29. Some investors believe the BoJ will use a “helicopter drop” of money.

The statement was made first by US economist Milton Friedman in 2000s. The Japanese regulator is considered to have already increased the volume of annual monetary stimulus from 80trn yen to 110trn yen. We believe such significant volumes of money poured into the economy may push Japanese stocks up. Given the heightened risks in Europe, investors consider them as safe-haven asset.

This week the significant economic data will come out in Japan on Thursday and Friday: machinery orders and factory orders as well as manufacturing PMI.

ifc markets Technical Analysis NIKKEI : 2016-07-18

On the daily chart Nikkei: D1 failed to break through the lower boundary of sideways channel late June and started rising towards its upper boundary. The MACD and Parabolic indicators have formed signals to buy. The Bollinger bands have widened which means moderate volatility and are tilted upwards. The RSI has not yet reached the overbought zone.

No divergence. We believe the bullish momentum may develop in case the Japanese stock market index surpasses the upper Bollinger band at 16750.

This level may serve the point of entry. The initial stop-loss may be placed below the Parabolic signal, the last fractal low and the support of the sideways channel at 14980. Having opened the pending order we shall move the stop to the next fractal low following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point.

The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 14980 without reaching the order at 16750, we recommend cancelling the position: the market sustains internal changes which were not taken into account.

Position Buy
Buy stop above 16750
Stop loss below 14980




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