As we discussed last month [see: Jul 14, 2017 Update] the Nikkei faced important overhead resistance at the .886 Fib retracement at 20306 (an error, should have read 20286.) As I noted at the time:
At SPX prepares to make a new all-time high, we have to take note that NKD has not yet pushed through its .886. Does this matter? Well, yes and no.
According to the harmonics gods, we should be looking at a Bat Pattern reversal which takes NKD down to at least the .618 Fib at 18698. [That], however, would require that several channel lines be broken, not to mention the SMA200.If there’s one thing the BoJ hates, it’s a drop through the SMA200. They wouldn’t even a allow a tag… back in March when they decided that holding the 2007 highs was more important.
20306 is the critical line in the sand. If NKD can push above it, then 20990 and 21459 look pretty good. If not, the next support is at the SMA100 at 19539 and then the SMA200, currently at 18959.
Almost a month and 700 points later, NKD is breathing down the neck of the SMA200 (now at 19260.) It took some pretty impressive maneuvers, including a rare 2% drop today.The timing is understandable. Japan is one of several targets in the line of fire between a dangerous crackpot (who, in addition to blurting out whatever incendiary thought pops into his head, could very well act on a whim and start a nuclear war) and Kim Jong-un.
Today’s action begs the question: is the BoJ ready and willing to support the NKD here, or is there more to come?
With the USDJPY currently sitting right at support, I think it’d take a shooting war for NKD to break down here. I suspect USDJPY will bounce strongly (not sure the pretext) and NKD will rise along with it after tagging the SMA200 around 19,290 in the next 24 hours.
If it drops through the SMA200, then all hell has broken loose in the markets (and, possibly in the Korean Peninsula.) In that case, the next support is the .618/.786 combo at 18631-18687. Below that, only April’s lows at 18255 and the .500 at 17903 stand between NKD and the abyss. GLTA.