[This Week’s Stock Market] Nikkei 225 falls for the first time in 5 weeks. Reading the future “downside targets” from the charts

Hello, this is the Kengo community.

I had finished creating the materials for the investment study group and felt a bit drained.

So, I’m getting back to my usual rhythm↩️

In this week’s Tokyo stock market, the Nikkei 225 Stock Average closed at 65,324 yen, down 3,706 yen (5.4%) from the end of the previous week.

It ended the trading week with its first decline in 5 weeks.

It was a week where a strong risk-off mood blanketed the entire market.

1. Background of the decline🙈

AI credit concerns and sharp drops originating from the US

The main triggers for the sharp drop were credit concerns and fears of overinvestment in AI investment and data center-related companies that emerged in the US market.

The sense of caution regarding the AI bubble, which had been driving the market until now, has reignited, putting strong selling pressure mainly on major AI and semiconductor-related stocks in both Japan and the US.

In particular, in the Tokyo market on Thursday, the Nikkei 225 saw a drop of over 3,300 yen at one point, recording the third-largest decline in history.

There was a moment when it plunged to the 64,000 yen level (64,425 yen).

On Friday, autonomous rebound buying entered due to the retreat of excessive caution, and it was bought back by over 800 yen, but the trend of being swayed by some major stocks with high index contribution continues.

2. Chart analysis📈

Downside targets include the “62,000 yen to 60,000 yen” range

Checking the current technicals (daily chart), it is positioned between the -2σ (approx. 62,000 yen) and -3σ (approx. 59,900 yen) of the Bollinger Bands.

We need to be aware of a further decline of about 5% to 8% from the current level.

Furthermore, looking at the oscillator indicator MACD, it has formed a dead cross, breaking through the signal line from above to below, suggesting that it has entered a short-term adjustment phase.

Even in terms of fundamentals, the fact that the market’s reaction was sluggish despite strong positive news such as the good earnings of semiconductor giants like ASML and TSMCcan be said to clearly symbolize the current heaviness of the market sentiment.

3. Future outlook🔭

“Three conditions” necessary for a market turnaround

For the stock market to return to a strong upward trend in the future, it is considered essential to have not just good earnings from individual companies, but also the following “improvement in the macro environment”:

1. Improvement in geopolitical risks, including the situation in the Middle East

2. Decline and stabilization of US interest rates

3. Bottoming out and recovery of major US stock indices
Until these external environments are confirmed to have improved, it seems to be a phase where cautious risk management is required, assuming milestones such as 62,000 yen and 60,000 yen, while refraining from easy dip buying.