Topix Set to Rise on Bullish Signals: Technical Analysis

Japan’s Topix index is poised to rise as technical indicators signal further gains, according to SBI Securities Co.

The gauge advanced 0.9 percent to 1,180.44 on May 23, sending it above its average for the past 50 days, according to data compiled by Bloomberg. The moving average convergence-divergence line, a measure of momentum, is headed today for its first positive close since March.

The Topix is set for a third day of gains today and a seven-week closing high after falling 9.4 percent this year through May 23, the steepest drop among 24 developed equity markets tracked by Bloomberg. The recent rebound comes amid a weaker yen and U.S. shares trading at record highs on strong economic data from the world’s largest economy.

“We’re starting to see strength emerging across the board,” said Nobuyuki Fujimoto, a senior market analyst at SBI, an online brokerage. “The smaller markets like TSE Mothers that don’t get much foreign investment seem to be bottoming out, and the Topix is rising more than the Nikkei 225 Stock Average today. The fact that the market value-based Topix is doing better is also a good sign.”

The Topix is approaching its 200-day moving average, which stood at 1,198.86 on May 23. The stock index climbed 0.9 percent to 1,191.24 at the trading break in Tokyo today. That’s 3.7 percent short of a recent peak on March 7. The Nikkei 225, which is a price-weighted index, rose 0.7 percent today to 14,567.04. The Tokyo Stock Exchange Mothers Index of smaller companies has rebounded 15 percent since a low on May 19.

200-Day Average

“The Topix must first break the 200-day average,” to cement the bullish signal, said Yutaka Miura, a senior technical analyst at Mizuho Securities Co. “Whether it can do that and go above recent highs in March and April will be key.”

Technical analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. MACD is a plot of values obtained by subtracting the 26-day exponential moving average from the 12-day average. The signal line is a nine-day exponential moving average of the MACD, and provides buy and sell indicators. The MACD line rose to 0.03 today, which would be its first close in positive territory since March 11.

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