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Nikkei 225 statistical and technical analysis

Fundamental valuation of the Japanese stock market looks much better compared to other developed markets. In addition, it has still room to test the all-time highs in 1989/1990. The current price of Nikkei 225 is 28 518 (December 21, 2021). Let’s now look at statistical and technical analyzes.

Based on a long-term analysis of historical data, the average positive and negative daily returns are approximately 1.01% and -1.04% , respectively. The estimated daily return in both directions based on their probability of occurrence is 0.53% and -0.50% . Yesterday´s return was 2.08% , which is between the first and the second standard deviation. Our scoring is currently negative (-2 ) for the month-on-month change and -2 for price indexation. Both scorings range from -3 up to 3 , which means that we are still estimating the negative phase of the cycle. The development of the estimated cycles based on our analytical system is shown in the following chart.

Nikkei 225 daily price indexation Source: WALFIR

Different moving averages (MAs) help us better identify trends across multiple time frames. We use 3 basic MAs to find out which sentiment dominates each horizon. The purple line represents the monthly , the green line the 6 months and the yellow line the annual moving average. According to all MAs, Nikkei 225 is in bearish sentiment because it is below them. In the case of growth, all MAs can be a resistance to the market price because they are close to each other.

Nikkei 225 daily price development Source: WALFIR

In the second half of this year, we have witnessed more downward trends, with the maximum level reaching 7 consecutive days, which is also the maximum increase in the measured period. The upward trend in recent weeks have not exceeded more than 3 days. However, the maximum for the last 3 years is 9 days. We could use the average long-term ATR (Average True Range) obtained from daily data (1.41% ) to estimate Stop Loss orders for our positions. The current value is 2.20% , which is more than average. Approximately 90% confidence interval (return between -2.40% and 2.40% ) is shown in the histogram below by a red rectangle.

Nikkei 225 daily return distribution Source: WALFIR

We could use the last decile of low to high returns (2.40% ) to estimate Profit Targets, as shown in the chart below.

Nikkei 225 daily low to high distribution Source: WALFIR

The basic technical analysis points to a sideways trading since the beginning of this year. The Nikkei 225 is currently close to the demand zone (green rectangle), where is also Fibonacci retracement level of 23.60% along with the psychological level at 27 000 . If the price falls below the zone, it can easily fall by more than 10% in the current market environment. However, if it rises above the MAs that are close to each other, we could see a test of this year’s highs.

Nikkei 225 basic technical analysis Source: TradingView

WALFIR Technologies is one of the three divisions of WALFIR s.r.o., which is based in Slovakia. The primary interests of this division are analytical, quantitative, and algorithmic...


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