Japan stocks rebounded on Wednesday, joining other global equities. The Nikkei 225 Index jumped by 2.6%, up by 5.5% from its lowest level this week. So, will these gains continue?
Nikkei 225 Index rally faces major risk
The Nikkei Index jumped, mirroring the performance of American futures, with those tied to the Dow Jones and Nasdaq 100 rising by over 340 and 130 points, respectively.
Other global indices also jumped, with the DAX rising by 210 points and KOSPI jumping by over 2%. Top indices like CAX 40, Hang Seng, and China A50 also jumped.
The rally is happening after President Donald Trump announced that talks between the US and Iran were continuing. He added that Iran had sent the US a major oil-related gift.
A deal between the United States and Iran would be highly bullish as Japan depends mostly on imported crude oil and gas from the Middle East.
However, there are concerns that the rising optimism will be short-lived as Iran has denied reports of talks between the US and the country. Iranian officials argued that Trump’s initial post on Monday was aimed at boosting the stock market and lowering energy prices.
Iran believes that it has an upper edge in the ongoing conflict because of its control on the Strait of Hormuz. By shutting the Strait, the country has pushed energy prices higher. In a statement on Wednesday, the head of Chevron warned that California risked a major energy crisis because 20% of its fuel comes from the Asian markets.
Additionally, Iran will likely not accept the conditions that the United States has put in place. According to the New York Times, the Trump administration has put in place a 15-point plan that Iran will not accept. For example, the plan calls Iran to stop funding proxies, end its ballistic missile program, and hand over its enriched uranium.
Iran also believes that the US may be using the talks to delay a land invasion in the country as thousands of troops are heading to the region. As such, there is a likelihood that the war will continue for a while, leading to higher oil prices over time.
Most Japanese stocks were in the green on Wednesday. Tokio Marine stock price jumped by 12% after Warren Buffett’s Berkshire Hathaway bought shares in the company.
Furukawa Electric, Ebara Corporation, Softbank, Fujikura, Sumitomo Electric Industries, and SUMCO were the top gainers, rising by over 6%.
On the other hand, the top laggards in the Nikkei 225 Index were companies like Nomura Research Institute, Recruit Holdings, BayCurrent, Inpex, and Konami Group, which dropped by over 1.1%.
Nikkei Index technical analysis
Nikkei Index chart | Source: TradingView
The daily chart shows that the Nikkei 225 Index has rebounded in the past few days. It jumped from a low of ¥50,557 to the current ¥53,600.
However, the index remains below the 50-day Exponential Moving Average (EMA). The Supertrend indicator has remained in the red, while the Relative Strength Index (RSI) and the Percentage Price Oscillator (PPO) have continued falling.
Therefore, the index will likely remain on edge in the near term. If this happens, the index will likely retreat and retest the support level at ¥50,557.
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