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Nikkei 225 technical analysis: Potential top in place

By Nathan Batchelor

Nikkei 225 technical analysis points to upcoming weakness in the index if sellers can invalidate a bullish inverted head and shoulders pattern. Weakness in the index should accelerate once the 23,130 level is breached.

The Nikkei 225 has started to turn sharply lower over recent days, as the coronavirus spreads to various other countries outside of China.

Nikkei 225 analysis shows that a move below 23,130 level could provoke a wave of fresh technical selling towards the index.

Nikkei 225 medium-term price trend

Fears over the spread of the coronavirus have been ramping up over recent days, with Japan and South Korea both seeing a significant increase in new infections.

Market participants have started to turn more bearish towards the Nikkei, due to the fact that the continued spread of the virus inside Japan could heavily impact the outlook of the domestic economy.

Nikkei 225 technical analysis shows that a breakout below the 22,760 level could cause the index to fall towards 22,000 level.

A break through the 22,760 support area could cause a quick drop to the 22,000 level, as it offers the only notable form of notable technical support below the 23,000 level.

Technical indicators are also pointing lower, with the RSI indicator turning bearish on the daily time frame, alongside the Momentum and MACD indicators.

Nikkei 225 short-term price trend

Nikkei 225 technical analysis shows that short-term bulls must continue to defend the technically important 23,100 level to avoid further losses.

A loss of the 23,130 level could see a strong downside move, with technical sellers testing towards last key swing-low, at the 22,760 level.

An inverted head and shoulders pattern is also present on the lower time frames, and could be in danger of being invalidated.

The invalidation of the pattern could cause a major downside move, which could be over 1,000, and extend beyond the 22,000 level.

Overall, buyers should be mindful that a powerful down move could occur if the 23,130 and 22,760 levels are taken out.

Nikkei 225 technical summary

Nikkei 225 analysis shows that the index could see a steep decline if the 23,130 and 22,760 levels are broken. The 22,000 level is seen as a valid downside target if the bearish scenario occurs.

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