Nikkei 225 consolidated in 2021, unable to hold above 30,000 points. While below, the bias is bearish.
The S&P 500 Index rallied this week and managed to close at a record high for the 69th time in 2021. While the rally is simply impressive, it has not been followed by all stock indices around the world. developed. For example, the Nikkei 225 index failed to recover. Instead, it consolidated throughout the year, unable to maintain itself above the key 30,000 point area.
Nikkei 225 technical picture looks bearish despite below 30,000 points
The graph above shows how the Nikkei 225 has performed over the past five years. From left to right, the 24,000 area provided resistance from 2018 to 2020, when the index declined as COVID-19 gripped the global economy.
As central banks and governments provided monetary and financial stimulus, the Nikkei 225 rallied and overcame resistance. The rally continued until the 30,000, but at this point the technical picture shows a potential bearish reversal.
First, the index has double-toped above 30,000. While it is too early to be confirmed, bears will try to push it lower unless the market hits a new high.
Second, at current levels we see a triangle which can act as an inversion pattern. A daily close below 28,000 should bring more weakness, and the next support level is at the previous resistance in the 24,000 area.
The BOJ maintains the status quo
Unlike other regions of the world, such as the United States or the euro area, inflation in Japan remains low. For example, last October it hit 0.1% year-on-year. In other words, inflation excluding energy prices has been contained and accommodative policies are therefore still justified.
In other words, the Bank of Japan remains accommodating, but it has been so too this year. Therefore, accommodative measures do not necessarily imply bullish conditions.
Domestic demand will remain resilient
Domestic demand could fuel strong economic growth in the coming year. After the end of the state of emergency, the consumption index measured by the Bank of Japan jumped 4.3% over the month. Services and durable goods have recovered rapidly, and employment prospects have also improved.
But the big question is whether the recovery can be sustained into 2022. Any news on the pandemic front is enough to alter consumer sentiment and trigger a risk-free market response.