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Japanese Stocks Poised to Rally 10%: Technical Analysis

Japanese stocks may extend their rally by more than 10 percent in the next three months after breaking through a key resistance level, according to a technical analyst at Natixis.

The Nikkei 225 Stock Average broke the resistance area of between 11,312 and 11,408 yesterday, a sign the gauge will prolong its upward trend, Ouri Mimran said in a telephone interview from Paris.

“We’ve seen a 38 percent retracement of the downtrend since the 2007 top and April 2010 top,” Mimran said. “The gauge is moving toward the next long-term resistance level of 12,646,” implying an advance of more than 10 percent from current levels.

The Nikkei 225 rose to 11,463.75 yesterday, its highest level since September 2008. Bank of Japan Governor Masaaki Shirakawa said he will step down almost three weeks ahead of schedule, accelerating a leadership transition that may aid Prime Minister Shinzo Abe’s campaign to weaken the yen to defeat deflation and lead the country out of recession.

“If the market continues to go higher in the next sessions, the current intermediate resistance level of 12,200 may become the new support level,” Mimran said. “We think the probability of a consolidation is low.”

The gauge has rallied 10 percent so far this year and capped a 12-week advance on Feb. 1, the longest such winning streak in 53 years, according to Nikkei Inc.

A pullback to below 10,255 would invalidate the bullish 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.

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