Japan Stocks May Drop More Than 7 Percent, Natixis Says

Japanese stocks may retreat more than 7 percent in the next two weeks after breaking through a key support level, before rallying almost 20 percent by year-end, according to a technical analyst at Natixis.

The Nikkei 225 (NKY) Stock Average fell below the 13,430 support level yesterday, a sign the gauge will experience a short-term downward trend, Ouri Mimran said in a telephone interview from Paris. He also said that if the index remains above a subsequent support level of 12,415, the Nikkei could rally 19 percent by the end of 2013.

“The gauge is in a short-term bearish channel from its July top,” Mimran said. “Our next target for the Nikkei is the support level of 12,415,” implying a 7.5 percent retreat from today’s close. “Holding above that level would then trigger an interesting bullish signal that would last until year-end, to about 15,940, as it would signal the end of the long consolidation phase that started in May.”

The Nikkei 225 fell to 13,424.33 today. Japanese shares have posted the biggest rally this year of 24 developed markets tracked by Bloomberg amid optimism that record stimulus by the Bank of Japan and Prime Minister Shinzo Abe’s economic reforms will boost growth. The gauge has still slumped 14 percent since its high on May 22, as the yen strengthened and Federal Reserve Chairman Ben S. Bernanke said the central bank’s pace of bond buying will slow if the economy improves in line with forecasts.

Breaking through the resistance level of 13,900 next week would invalidate the bearish scenario, Mimran said.

In technical analysis, investors study charts of trading patterns and prices to predict changes in a stock, commodity, currency or index. Analysts identify resistance levels, or ceilings limiting further gains, and supports, which act as floors in a declining market.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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