Nikkei 225 Technical: Overstretched Decline, Potential Rebound Looms

• Nine-week corrective decline from the 16 June 2023 high has almost reached a key inflection/support level of 31,130.
• Short-term momentum indicates an overstretched down move from the 10 August 2023 minor swing high, increasing the odds of a potential rebound in price actions.
• Intermediate resistances to watch will be at 31,760 and 32,380.

The price actions of the Japan 225 Index (a proxy of the Nikkei 225 futures) have staged the expected corrective decline and tumbled by -3.5% from 2 August to print a current intraday low of 31,248 in today, 18 August Asian session at this time of the writing.

Interestingly, several key elements are now advocating for a potential rebound.

The current decline has almost reached a key inflection/support level of 31,130

Fig 1:  Japan 225 medium-term trend as of 18 Aug 2023 (Source: TradingView, click to enlarge chart)

The current intraday low of 31,248 is now right above the upward-sloping 100-day moving average, former ascending channel resistance from the 9 March 2023 high, and 38.2% Fibonacci retracement of the prior medium-term up move from the 15 March 2023 low to 16 June 2023 high that all confluences with the 31, 130 support.

Downside momentum of current minor down move has shown signs of easing

Fig 2:  Japan 225 minor short-term trend as of 18 Aug 2023 (Source: TradingView, click to enlarge chart)

The most recent down move in place since 10 August 2023 minor swing high of 32,830 has started to ease in terms of momentum analysis as depicted by the bullish divergence condition flashed out today on the hourly RSI oscillator at its oversold region.

Given that the nine-week of corrective decline from the 16 June 2023 high of 34,015 within its major uptrend phase that is still intact has reached close to key support of 31,130 coupled with positive short-term momentum, the Index may see a short-term rebound at this juncture.

Watch the 31,130 short-term pivotal support and a clearance above 31,760 sees the next intermediate resistance at 32,380.

However, failure to hold at 31,130 exposes the next support coming in at 30,720 which is also the former swing high areas of 16 February/14 September 2014.