The Nikkei 225: A Saga of Resilience Amidst Bearish Pressures

• As Monday, 5 August witnessed a significant selloff in the Nikkei 225, it has sparked hopes of a bullish key reversal inflection week.
• The Citigroup Economic Surprise Index for Japan showed a positive turnaround on the same day, hinting at improved macro data.
• A notable percentage of Nikkei 225 component stocks are trading below their 200-day moving averages, signaling a potential turning point from bearish sentiment.
• Investors are advised to keep an eye on the major key support level at 30,460 on the Nikkei 225.

This analysis serves as a follow-up to the previous report titled “Nikkei 225: Bullish breakout with improved market breadth” released on 27 June 2024.

Following the previous publication, the Nikkei 225 managed to rally and achieve a fresh all-time high of 42,427 on 11 July 2024, nearing the medium-term resistance range of 42,600/43,400.

However, recent weeks have seen the Nikkei 225 facing significant bearish pressure attributed to various adverse factors, resulting in a sharp downturn due to fund flow disruptions and unwinding of risk-on-carry trade strategies.

The market plunged by 12.40% on Monday, 5 August, its most drastic daily decline since the infamous “Black Monday” crash of October 1987.

Furthermore, the current 4-week maximum drawdown stands at -26.60%, marking the steepest decline in a 4-week period since the onset of the Covid-19 pandemic.

Despite these challenges, three key factors suggest that the recent sell-off may signal a crucial bullish reversal for the Nikkei 225.