After the strong selloff in US stocks overnight and the backdrop of a suspected terror incident out of Spain, there appeared to be every chance of a continued selloff in Asian equity markets. That didn’t eventuate and in fact the Nikkei has started to put in a strong candlestick pattern that can often lead to a rally.

There is a clear hammer on the 4-hr chart and indicates that while the sellers tried to come in, buyers won the battle. We often use this type of candlestick pattern as a reversal.

Sometimes Asian markets don’t always continue with the momentum that is generated in the US sessions. That’s because the news is already factored into the market. In the event of negative news, that can often be overdone – which appears like it might be the case here.

For the remainder of the Asian session there might be some opportunity for an upside move in the Nikkei given the bullish chart pattern.