The Japanese yen has been getting eviscerated, so the currency part of the equation is not much to worry about, and if anything, it’s actually a bullish situation.

The Nikkei 225 initially tried to rally during the session on Thursday but has given back much of the gain to the ¥26,400 level. The market continues to be very volatile, but Japanese equities are simply mimicking what we are seeing around the world. As we continue to see a contraction of earnings around the world, it does make a lot of sense that the Nikkei 225 will fall right along with the other indices.

The ¥25,600 level looks to be important, as we have formed a bit of a “double bottom” in that general vicinity, so therefore it makes sense that we would see that as a support level. If we were to break down below that level, then the Nikkei could go looking to challenge the ¥25,000 level, perhaps even the ¥24,800 level after that. Breaking through that could open up the floodgates for the Nikkei, allowing the market to completely unravel.

The alternate scenario is that we take out the 50 Day EMA, which is roughly at the ¥26,800 level. The market continues to see a lot of noise in that area from what I can see, mainly due to the fact that historically it has been very noisy. If we were to break above that level, then the 200 Day EMA comes into the picture at ¥27,300. After that, the ¥20,400 level is major resistance, and if we can break above there it’s likely that the market goes much higher. That being said, it’s very difficult to see that happen, but I do think that the most bullish case will be that we simply bounce around in this consolidation area, as the Nikkei 225 has to worry about a global recession. If that is going to be the case, the market will suffer due to the fact that Japan is highly sensitive to exports. After all, is an export-laden economy so therefore the major input of this index is going to be whether or not the Japanese can send their goods across the Pacific Ocean.

The Japanese yen has been getting eviscerated, so the currency part of the equation is not much to worry about, and if anything, it’s actually a bullish situation. The currency markets seem to have very little effect on this market currently, but if we start to see the Japanese yen appreciate in value, then that could be yet another had when for the Nikkei.

Right now it’s very unlikely that we can keep up this type of momentum.

The Nikkei 225 had spiked initially during the trading session on Thursday but gave back the gains at the ¥28,400 level to form a massive shooting star. Because of this, it’s likely that the market is going to continue to see a lot of pushback in this area, and as we are a little overdone at this point, would not be a huge surprise to see this market pullback. The ¥27,600 level is an area that the 200 Day EMA sits at, but whether or not it holds remains to be seen. After all, being stretched the way we are suggesting that we are due for that pullback.

On the other hand, if we were to break above the ¥28,700 level then it’s likely that the market could go higher and reach the ¥29,200 level. That would be an explosion to the outside, but right now it’s very unlikely that we can keep up this type of momentum. This is especially true considering how many concerns there are around the world, but the one thing that Japan has going for it is that its currency is getting eviscerated. This helps the fact that the Japanese economy is so heavily weighted to exports, but it also can cause major issues for the populace.

The 50 Day EMA is starting to curl higher, and if it can cross the 200 Day EMA, then it would open up the possibility of a “golden cross”, which is a very bullish sign. At this point, the market will probably have a lot of people jumping into the market, but I think the only thing that you can count on is that we are going to see a lot of choppy volatility.

The question now is whether or not we are in the process of forming a “double top”, so if we do pullback I would anticipate that more sellers jump in. On the other hand, if we break above the high that was made at the end of March, that would be a significant breakout. Ultimately, the Japanese equity markets will more likely than not follow the rest of the world, which doesn’t look that impressive at the moment. Pay close attention to the Bank of Japan, because they are currently fighting interest rates rising, but eventually, they may have to give up.

At this point, I have to think about pullbacks as potential buying opportunities, until we get below the 50-day EMA.

The Nikkei 225 rallied significantly on Thursday to break above the 200-day EMA, and perhaps just as importantly, has broken above the top of the shooting star from the previous session. This is a market that has recently escaped a down-trending channel, which suggests that the Nikkei 225 could make a bigger move toward the ¥28,300 level.

If we turn around and fall, the market is likely to go looking to the ¥27,000 level. The ¥27,000 level also has the 50-day EMA approaching it and rallying. That should be a little bit of a dynamic support level, so if we were to break below all that, the market more likely than not will drop to the ¥26,000 level. The market will remain very noisy, but it does suggest at this point that the Nikkei 225 is going to be a bit higher from what we can see. We need to make the breakout in order to put money to work, and I would be cautious about building a huge position anytime soon, but I think given enough time you could build up a bigger position if we finally break out. This will be especially true if we break above the ¥28,000 level.

On the other hand, if we see this market break down below the 50-day EMA, it’s likely that the market will drop to the ¥26,000 level, perhaps even down to the ¥25,000 level. This would be more likely in reaction to a general selloff. The risk appetite around the world is all over the place, and you need to pay attention to the other stock markets. If we start to see a lot of negativity in some of the major indices, that would more than likely have a bit of a “knock-on effect” over here. On the other hand, if the Japanese yen continues to see losses, that could be good for the Nikkei 225, as the exporters in Japan will be much more competitive. Pay close attention to the USD/JPY pair, because if it continues to go higher that may be reason enough for exporters to climb in Japan. At this point, I have to think about pullbacks as potential buying opportunities, until we get below the 50-day EMA. At that point, we have to reassess things.

While it looks bullish, noticing how we close at the end of the day on Friday could also be used as a potential entry.

The Japanese index initially pulled back during the session on Thursday but then turned around to show signs of life. The market is currently threatening the ¥27,000 level, which happens to coincide quite nicely with a downtrend line that makes up the top of the channel that I have marked on the chart. If we can break above there, then it’s likely that we go looking to the €27,500 level next. What’s interesting about that level is that it also includes the 200 Day EMA.

If we do turn around and break down below the ¥26,500 level, then it’s likely that we go looking to reach the ¥26,000 level underneath. After that, then you are looking at a potential move down to the ¥25,600 level. We are testing the top of the channel at the moment, so the Friday session is going to be crucial. In fact, it’s why I picked this market to analyze during the trading session because I realize that this could be a harbinger of where Europe goes heading into the weekend.

If Asia has a good Friday session, is very likely that we will see that follow through on not only the European continent but possibly the North American continent. It’s worth noting that the S&P 500 rallied quite nicely late Thursday, which could lead to more buying when it comes time for the Japanese to get involved. However, you should also keep in mind that a lot of this is going to come down to the prospects of exports, which is something that’s a little bit trickier than a simple technical pattern. After all, Japan is a heavily export-laden economy, and this of course means that the Nikkei 225 is going to be sensitive to the rest of the world.

Market participants will have to keep an eye on the Japanese yen, because if it suddenly appreciates too much, then exporters start to get worried, and of course, so do market participants as it would have such a negative effect on earnings. All things being equal though, it is worth noting that the most recent pullback was much shallower than the ones before it, so this could be yet another sign that we are about to see a stock market rally, at least in the short term. While it looks bullish, noticing how we close at the end of the day on Friday could also be used as a potential entry.