After being pushed back by overhead resistance, the Nikkei 225 is said to be entering a phase in which the relationship between its 5-day and 25-day moving averages, along with the performance of the support line connecting previous highs and lows, will be key to its future direction.
Based on the trend line and momentum movements highlighted in the previous column, the Nikkei 225 temporarily fell below ¥65,000 during trading on 25 August, but then closed above both its 5-day and 25-day moving averages after leaving a lower shadow. Although it has currently recovered to around the 75-day moving average, conditions do not yet support a definitive conclusion that the market has bottomed.
In assessing the market's future direction, it will be important to see whether the index can maintain levels above the 5-day moving average. If this continues, the 5-day line may flatten or turn upward, increasing the likelihood of a move above the 75-day line and raising the prospect of a transition into an uptrend.
If the index falls below the 5-day line and fails to recover, the risk will increase of a break below the 25-day line, a breach of the support line and a shift into a downtrend. The support line is defined by the line connecting the closing prices on 31 March and 29 July, and movements below it warrant close attention.
Momentum remains below the zero line, and the direction and levels of the two lines will be key indicators of the market's future course. If they turn upward from a flat trend and move above the zero line, the market could potentially enter buying territory, but if the decline strengthens, a break below support may be expected.
With NVIDIA's earnings and a speech by Federal Reserve Chair Warsh due this week, a wait-and-see mood is expected to spread. When share prices move in response to the results, avoiding losses and responding cautiously will be essential.