NIKKEI225 Reaches New All-Time High – TSMC Leads the Way

Japanese stocks get a boost on renewed AI optimism with semiconductor manufacturer TSMC up 3.54%.

U.S. tech stocks achieved another all-time high overnight fueled by AI speculation and a close Fed pivot. The NAS100 peaked at 20,725 yesterday giving tech stocks and the NIKKEI225 momentum, taking the index to an ATH of 42,465.

Statements from Fed Chair Powell’s testimony at the house committee help investors gain hope of a rate cut before the end of the year. As the possibility of a cut is linked to inflation, today’s inflation data is of significant importance to keep the current bull momentum alive.

The BoJ on the other hand, is battling with the need to raise interest rates to curb rising inflation. The central bank also has another concern, a weakening yen. Speculation has been rising that the BoJ will raise rates as a way to defend the local currency.

While a weak yen can lead to imported inflation it is also helping the stock market as share prices look cheap to investors with books in foreign currencies. A rate hike in Japan may lead to a correction in the stock market.

But at the same time, a bull run in the U.S. market and hopes rate cuts could still lead the NIKKEI225 higher.

Technical View

The day chart below for the NIKKEI225 shows a market in a strong bullish trend. Yesterday’s candle reached an RSI of 80, while it indicates that the market is reaching overbought, it also tells us the market has a strong momentum.

The setup at the moment is looking like we may have reached a correction point. The Fibonacci retracement tool shows the first support on the 0.236 line of 41,104 (red line) also coincides with the support from a previous high of 41,109 (black line).

If the market does correct from here, I would expect that area to hold given the technical aspects of previous highs and the Fibo 0.236 level. For the signal of a correction to be complete we would need the RSI to close below 70.