• JP 225 index reclaims August’s loss

• Short-term risk is on the positive side

• Will the bulls breach the 38,600-39,950 area too?

Japan’s 225 stock index (cash) is trading with soft positive momentum on Thursday for the second consecutive day, hitting a three-week high of 38,421.

The index has  reversed more than half of its July-August freefall and there could be more bullish potential as the technical risk remains skewed to the upside.

Despite the downturn in the stochastic oscillator, the RSI is making a gradual upward progress above its neutral mark of 50 and is still far from its overbought level of 70. Likewise, the MACD remains positively charged above its red signal line, aiming to climb above its zero line. Adding to the positive signals is the price itself which has crossed above the middle Bollinger band and is some distance below the upper band.

The journey higher, however, could be challenging. The 50-day simple moving average (SMA) at 38,600 and then the 39,500-39,950 area could tease the bulls, delaying an advance towards the 41,147-41,500 resistance zone. If the latter gives way, it would be intriguing to see if fresh buying will push the price beyond the 42,950 bar.

In the bearish scenario that the price drops below the 200-day SMA at 37,435, the spotlight will fall on the 20-day SMA (Middle Bollinger band) at 36,600. The 35,300 region might draw greater attention as a violation there could press the price back into the 33,585-33,130 floor.