Following four red candles, the JP225 cash index is today recording an interesting candlestick called hammer that is usually interpreted as a bullish sign. The bulls would probably like to be given the chance for a rebound as the JP225 index has been on a downward trend since the June 16, 2023 high, and they are currently facing a bearish series of lower lows and lower highs. Therefore, a potential upleg needs to be sizeable to negate this structure and worry the bears.
In the meantime, the momentum indicators hesitantly support the bears’ intentions. The RSI has made a lower low, but it appears to be moving sideways now. The Average Directional Movement Index (ADX) has just surpassed its 25-threshold, signaling a muted bearish trend in the market. Interestingly, despite the recent downleg in JP225 index, the stochastic oscillator has failed to make a lower low, allowing the possibility for the formation of a bullish divergence. Its next move is crucial, especially if it finally decides to enter its oversold territory.
Should the bears remain committed in continuing their pullback, they would like to keep JP225 index below the 23.6% Fibonacci retracement level of the March 8, 2022 – June 16, 2023 uptrend at 31,764, and then have a go at the 100-day simple moving average (SMA) at 31,131. They could then set their eyes on the 30,376-30,711 area. This range is populated by the February 16, 2021 high and the 38.2% Fibonacci retracement, and breaking it would be key from a momentum perspective.
On the other hand, the bulls are trying to stage a recovery. The various bullish signs should energize them into pushing JP225 index above the 31,764 level and then target the 32,300-32,725 range, defined by the June 27, 2023 low and the 50-day SMA. Higher, the March 15, 2023 trendline could be the next key resistance area.
To sum up, the JP225 index bulls appear willing to take over the market reins but they need more bullish signs and a strong signal from the momentum indicators, which remain on the bears’ side.
