Day four: our potential Japan 225 trade

Earlier in the week price action was looking very bearish, with many in the market looking at the close below the multi-month channel pattern and head and shoulders pattern on the weekly chart. 

The moves in the Japan 225 yesterday were significant and we have seen the index reclaim the former channel support. Oscillators are turning higher from the bottom of the range and it looks as if the market can now head higher. News that the Japanese Government Pension Fund could be changing its portfolio allocations is clearly helping, as this would mean selling out of poorly performing low risk assets and increasing its weighting to foreign and domestic stocks.

My trade idea from earlier in the week was stopped out for a 1.3% loss, however I have mitigated some of that by being long USD/JPY from 101.90 and continue to hold this position.

As you can see from the hourly chart (enclosed) the index actually looks fairly bullish, albeit a touch overbought. On the daily chart the index oscillators are moving higher from the bottom of their range as detailed, so this suggests that we may only get a modest pullback. Based on what I can see on the hourly chart I would switch bias and would look to buy a slight pullback to 14,400, with a stop at 14,300 – just below the 38.2% retracement of the April sell-off  and series of lows yesterday. A move to 14.640 could be on the cards.

Japan 225
IG Charts

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