The Nikkei briefly moved above its 200-day moving average at the end of October, but upside momentum weakened after the rebound. Its November direction is expected to depend on the 2nd-of-the-month market opening and the outcome of the U.S. midterm elections.
The Nikkei touched its 200-day moving average in late October and rebounded, then made another attempt to move higher but failed to rise above its 25-day moving average. After November began, it closed below its 5-day moving average. Analysts say that whether the 200-day line can hold will have a major bearing on the direction of share prices toward year-end.
November's first trading day will fall on the 2nd of the month, a pattern that has historically been associated with volatility. The U.S. midterm elections are scheduled for 3 November U.S. time, and the outcome is attracting the attention of market participants. The timing of the 2nd-of-the-month opening is coincidental, but is viewed as a situation the market cannot ignore.
The key question for the market outlook is first whether the 200-day moving average can hold. If it does, the long-term uptrend could continue regardless of the midterm election result, with the Nikkei potentially rising above its 5-day line and entering another upward phase. If the index falls below the 200-day line and fails to recover, the 5-day line could act as resistance, increasing concerns that a death cross will occur and that the market could turn into a downtrend.
Momentum analysis shows that momentum and its moving average turned upward after the rebound at the 200-day line, with momentum briefly moving above the zero line. It failed to hold that level, however, and turned downward again, suggesting that selling pressure could intensify. Conversely, if the decline remains limited and signs emerge of an upward turn even after the Nikkei breaks below its recent low, expectations for a rebound could increase.