In mid-October, the Nikkei 225 index attempted to break through the psychological barrier of 40,000 points but ultimately reversed direction.
This week, the index has continued its downward trend, driven by concerns surrounding the upcoming elections for Japan’s House of Representatives scheduled for October 27. According to Reuters, the ruling Liberal Democratic Party (LDP) and its coalition partner, Komeito, may lose their majority in the elections.
Meanwhile, technical analysis of the Nikkei 225 chart reveals several bearish indicators:
→ The lower bounds of both the previously active blue and purple ascending channels have acted as resistance, along with the noted 40,000 level.
→ The price has broken below the ascending trend line (marked in red) around 39,000, suggesting that bears have gained enough strength to push through. Consequently, the 39,000 level may now serve as resistance.
Overall, the situation appears increasingly concerning. Could the rise from point V to C be merely a corrective move following the downward impulse from A to B? If so, a downward reversal from 40,000, coupled with a bearish breach of the trend line, could signal a resumption of the downtrend, potentially leading to a decline towards the 37,000 level, which has previously interacted with the price on multiple occasions.
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