STI Index and Nikkei 225 Technical Outlook: At A Critical Juncture

STI, Singapore Straits Times Index, Japan Nikkei 225 – Technical Outlook:

• STI risks a Head & Shoulders-type topping formation.
• The Nikkei 225 index could be breaking out of a multi-week range.
• What is the outlook and what are the key levels to watch?

STI TECHNICAL FORECAST – BEARISH

Singapore’s Straits Times Index (STI) is attempting to break below vital support that could shave off another 12%-14% in the coming weeks and months.

Unlike some of its Asian peers, Singapore’s benchmark index has been relatively resilient in the face of tightening global financial conditions. However, that could be about to change. The index is testing support on a horizontal trendline from 2021 at about 3024, raising the risk of a topping formation similar to a Head & Shoulders (H&S) pattern. If it is triggered, the price objective would work out to about 2600.

STI Weekly Chart

Chart Created Using TradingView

Below 3024, there is quite strong support at about 2840 (the 50% retracement of the 2020-2022 rise), coinciding with the June 2020 high, followed by 2690 (the 61.8% retracement). On the upside, the index would need to regain the June high of 3307 for downward pressure to fade. Immediate resistance is at last week’s high of 3168.

NIKKEI 225 INDEX TECHNICAL FORECAST – BEARISH

Japan’s Nikkei 225 has been boxed in a slightly upward-sloping channel for a large part of this year. However, like the Singapore Straits Times Index, the Nikkei 225 index is testing crucial converged support at the June low of 25520, roughly coinciding with the lower edge of the channel.

NIKKEI 225 INDEX Weekly Chart

Chart Created Using TradingView

A decisive break below the support could pave way towards 22500 in coming weeks and months, which is roughly the price objective of the channel. Importantly, such a move would imply a drop below another vital support at the 2018 and 2020 highs of 24450 – a strong signal suggesting that medium-term upward pressure had faded. As the chart below shows, a similar move in 2019 led to a multi-month sideway range (that is, an easing of upward pressure).

NIKKEI 225 INDEX Monthly Chart

Chart Created Using TradingView

On the upside, the Nikkei 225 index needs to rise above immediate resistance at last week’s high of 27400 for a convincing move back within the channel. Any break above the top edge of the channel would clear the way towards the September 2021 high of 30796, and potentially higher levels.

— Written by Manish Jaradi, Strategist for DailyFX.com