Nikkei 225 Struggles to Hold Above the Psychological Level

The Nikkei 225 (Japan 225 on FXOpen) has risen nearly 20% in 2024, marking its best performance since 1989, according to Trading Economics. This impressive gain is especially noteworthy considering the market plunge in early August, triggered partly by the Bank of Japan’s historic interest rate hike.

According to today's chart of the Japanese stock market index Nikkei 225 (Japan 225 on FXOpen):

→ Late last week (marked with an arrow), the index surpassed the psychological 40,000 level, reaching a 5-month high.
→ However, as this week began, the Nikkei 225 dropped below 40,000, failing to sustain its position above this key level.

Potential influencing factors:

→ Portfolio adjustments as the new year begins.
→ News about a potential merger between Nissan and Honda.
→ A weakening yen, which supports Japan’s export-driven industries.

Technical analysis of the Japan 225 (Japan 225 on FXOpen) chart shows that:

→ Bulls have been forming an A-B-C-D-E structure of higher highs, outlining an ascending channel (shown in blue). Despite this, the 40,000 level remains a strong resistance point.
→ The bears are gaining an edge with Line 1, which splits the channel into quarters and signals increasing resistance.

Given these dynamics, Friday’s peak could be a false bullish breakout. The Nikkei 225 (Japan 225 on FXOpen) might retreat towards the median line or drop further to test support around 37,800.

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