A plunge in Nikkei 225 this week

I have decided to include this entry this week. In my last up-date on Nikkei 225 in After a week's break...... I was still positive on this counter while it was barely supported by the moving averages. It however, surprised the world with a plunged of over 900 points on Tuesday, 20thDecember 2022.

To be frank, I was happily trading this counter in the morning and moved away by 9:00AM. That was part of my strategy. It really took me by surprise when I checked on the market status by 3:00PM. but I do not regret not capturing this plunge, becaussse it is not part of my strategy.

It is due to a surprise move by Bank of Japan to consider relaxing the the tight limit set on their bond yield, leading to possibility of increase in interest rate in future. The move caught the market off guard and thus resulting in the Tuesday's plunge.

Fig 1. Nikkei 225 weekly chart

By the end of the week, Nikkei actually broke as stayed below the 144-week moving average. I estimate that the counter may try to reverse up in the coming week, but may be kept below the belt by the end of the coming week. If this is so, we will see continuation down trend.

Another observation is that Nikkei seems to be in a triangle formation. It has not been broken yet, therefore I will not use this as a gauge for measurement. 

There are 2 formations that enable me to use projection to estimate its support levels. The  first makes use of the top of the major trend and counter trend. However, the down trend here with a gradual slope and to it is not a very good indication for trend reversal confirmation. Giving me a sense that the whole thing might be a counter trend itself.

The support level using projection is between 23,108 to 25,443. 

Base on the more recent fluctuation on the other hand, I can see the more immediate support levels. It surpassed 26,276 and the next level is between 23,921 to 24,901.

If it reverses however,  it will be possible for Nikkei to surpass the previous major high.

What about its currency JPY? After all, interest rate affects currencies much more than others.

Fig 2. JPY weekly chart

Contrary to Nikkei, JPY actually strengthen against USD, meaning that the demand for JPY increased. I have spoken to my brother briefly, he is an accountant. He said it is logical, the demand for JPY and the drop in Nikkei is redirection of JPY for government bond.

What happened here is the drop of JPY (on the chart) is supported by its 55-week moving average, and the moving averages support remain intact.  It is possible a reversal might happen next week, IF  the bar next week tests but ends above the moving average.

For the time being, I will maintain the indication given by the counter. Using projection (again), I estimate the support be between 129.67 to 132.65.