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After breaking below the 5-Day Moving Average, the Nikkei seems like it will decline but does not.

The Nikkei average reached a high of 40,852 yen during trading on June 30, forming an upper shadow and failing to recover below the 5-day Moving Average, indicating that the stock price has formed a ceiling. However, looking at the subsequent stock prices, they have continued to remain flat.

Furthermore, despite the 5-day Moving Average capping the upper prices, the stock price is struggling to decline. Particularly noteworthy was the announcement made by U.S. President Trump on his social media shortly after 1 AM Japan time on July 8, stating that he would impose a 25% tariff rate on Japan, which was expected to become a selling factor in the Tokyo market.

However, when the actual trading began, rather than becoming a selling factor, the price reached a low immediately after the start of trading, and the Nikkei Average rebounded and closed with a bullish candlestick. Why did such a situation occur?

In fact, there is a technical reason for this. Stock prices have levels where increases stop and decreases stop, and these levels are referred to as "fushi" or "fushime." Additionally, since this level has not been broken since July, it is believed that the stock price has stopped falling and is forming a consolidation.

So, when is the price and date that mark this turning point? It is the low of 39,444 yen reached during trading hours on July 2. Since the price has not fallen below this level, it can be considered that the stock price has stopped declining. However, if it falls below this price, it is believed that a decline towards the 25-day Moving Avarage could be in sight.

So, what happens if it continues to stay flat without breaking this price? If it stays flat, it is possible that it will eventually surpass the downward 5-day Moving Avarage, which means that the Nikkei Average could potentially recover back to the 40,000 level sooner or later. However, for that to happen, one more condition needs to be met. That is an increase in momentum.

[Chart] Nikkei Average Stock Price (Daily) Source: Created by Invest Trust Co., Ltd. from i-chart *The periods for the Moving Averages are set to 5 days (blue line), 25 days (red line), and 200 days (gray line) *The trading volume is on the prime market.

• The momentum period is set to 10 days (blue line), and the 3-day Moving Average of momentum (red line) is also displayed.

Pay attention to whether the momentum changes upward.

Looking at the level of momentum, it is above the 0 line, which serves as the dividing line for assessing upward and downward momentum. Additionally, remaining above the 0 line is considered one of the reasons why the stock price has been hesitant to decline even after falling below the 5-day Moving Average.

Therefore, whether the momentum level rises or falls will be a key factor influencing future price movements.

In such a case, if the momentum and its Moving Average, the signal, continue to be flat, it is possible that the stock price will also remain flat. On the other hand, if it changes upwards and rises, or declines and falls below the zero line, it is believed that the momentum will accelerate in the direction it moved, and the stock price will start to move in that direction as well.

Therefore, investors who hold positions in the opposite direction of the movement need to be cautious of potential losses or their expansion. It is important to pay attention to the levels and direction of momentum to avoid missing the timing when the Nikkei Average starts to move.