When Asia breaks…better not be a bull..

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We come back to USDJPY and NIKKEI as the warnings are getting more frequent and the probability of seeing price breaking downwards has increased. NIKKEI futures pushed lower than 14000 yesterday only to bounce from 13900 only a few points higher than their important lows at 13850. USDJPY also reached 101 support and  bounced higher towards 101.50 later in the day. US equities rallied yesterday but the enthusiasm was not followed in USDJPY.

As shown in the chart below, USDJPY has broken the long-term upward sloping channel and the red trend line support. Long-term support levels are broken and there is huge downward potential for this pair, at least towards the lower range of the previous triangle near 94.

USDJPY1

USDJPY although it looks weak, it still holds above the 101 and 100.60 support levels. Breaking below 101 will be the start of a large decline that could push it towards 96. The last time we saw such a decline in USDJPY was when NIKKEI fell from 16000 to 13850.

USDJPY2

So how is NIKKEI reacting to this JPY strength? NIKKEI is also testing its important lows at 13850-14000 price level. A break below this area is very possible and could push the index straight to 13000. Longer-term targets can be found lower, but we will talk about them after and if we first reach 13000.

nikkei1

NIKKEI is inside the purple downward sloping channel as shown in our chart above and I believe that it is only a matter of time to see prices break below support and accelerated selling push this index in the 13500 area. Keeping an eye on USDJPY and NIKKEI is important as a possible break down will have bearish implications for the rest of the world equity markets. The divergence between US equities and NIKKEI and USDJPY suggest that either the US equities are expected to make a deep correction or Asia will hold its support levels and bounce strongly upwards. Taking into account the RSI divergencies we have witnessed for some time now in US indices, I expect the bearish scenario to come true.

S&P has made a rise from 1814 that is far from impulsive. Wave structure is complex and with overlapping waves. I believe this is an upward corrective move and soon we should see price pull back towards the longer-term upward sloping white channel. I expect S&P to move at least towards 1840-45 or most probably towards 1810-20.

SPX

A break of the upward sloping white channel will mean that correction will be deeper and the index could re-test 1740 lows. Until then bulls should be very cautious and not overconfident. Stops should be raised as the warnings from Asia are worrying. For more help trading the FX and equity markets become a subscriber today to access my live trades tweeted through my exclusive twitter accounts only to subscribers.

As always, thank you for taking the time to read my new post.

Alexandros Yfantis
Alexandros Yfantis
Fascinated by financial markets, studied International Securities Investment and Banking in the UK, works as a Portfolio Manager in Greece and runs a technical analysis website. Enjoys travelling and spending time with his family and preparing for the black belt in Korean Karate.