Earlier this morning, I spoke about how stock markets have the potential to overshoot the mark in their search for fair value. It appears the Nikkei has responded as we thought it might and started to retrace its way back to where it started.

Last week the Japanese Index was down more than 1.5% after a series of comments from President Donald Trump managed to scare worldwide equity markets and send them tumbling down. Markets like certainty and the threat of war is not something that is going to be a positive for markets.

Historically speaking when negative geopolitical news comes across the wires, there’s a rush towards safe-haven assets and out of what we term ‘risk assets’ – such as equities.

Buying Stocks like Warren Buffet

When markets sell-off this is often the perfect time to buy. Famous investor Warren Buffett has made his fortune by ‘buying when people are scared’.

The Nikkei is already up 0.75% today thanks in part to some positive data, however I feel there is still some more room to go higher in the coming days. There’s an area that I spoke about in the morning preview that is very much now in play.

I’m looking for a test of 19650-19750 this week, as hopefully the Monday retrace will continue to gain steam.

Watch out for the 200 SMA

The biggest downside risk for the Nikkei is the 200 SMA. If you go back and study market crashes, historically they happen when price is below the 200 SMA on the daily chart.

At this point in time the 200 SMA is sitting around 19300 – so watch that level closely.