Charting Asia

Nissan Shares Rebound, But Recovery Is Fragile

Last week, Nissan Motor, Japan's No.3 automaker, posted an 86 percent fall in quarterly operating profits, hit by a stronger yen and declining car sales. Nissan, held 44 percent by France's Renault, reported an operating profit of 11.6 billion yen (US$122.9 million) in April-June, down from a profit of 80 billion yen a year earlier. 

The Nissan Leaf

That's pretty decent considering how badly automobile sector has fared this year.

Nissan shares have almost doubled in price this year, making them the best performer among Japanese auto shares.

And this past weekend, Nissan took the wraps off its much-awaited electric car, naming the hatchback "Leaf" and taking a step towards its goal of leading the industry in the zero-emissions field.

"We celebrate today the start of a new chapter of our company's life," Chief Executive Carlos Ghosn said at the car's unveiling in Yokohama.  And it certainly is a different direction the company is heading both in terms of zero-emission vehicles as well as the charts.

The weekly chart for Nissan shows a powerful trend recovery and a strong rebound from newly created support areas. The move above the long-term   (GMMA) followed by a retest of the support from the long-term GMMA is a classic breakout pattern. 

  • Nissan Unveils Zero-Emission Hatchback 'Leaf'

When Nissan fell below 14.50 it entered new territory in charting terms. There was no previous history of support, so new areas were created near 8.50 and later near 6.50.

These were not significant areas as the market trend recovery has shown. These area did not provide significant resistance points for the new trend recovery from the 5.50 area. In trend terms, Nissan turned over a new leaf when prices moved above 7. The trend behavior between 5.50 and 14.50 was not constrained by historical precedent. It was a new leaf and the result was a rapid unhindered rise to current levels.

The landscape above 14.50 is very different. It is littered with historical support and resistance levels. The move above 14.50 has a resistance level near 16.00. Any move above 16.00 has resistance near 18.60 and then again at 19.60. These levels have a restraining effect on the momentum of the trend rise. This is old established charting territory and it changes the nature of the trend recovery.

These changes include a reduction in the speed or momentum of the trend. Although the price may move quickly from 14.50 to 16.00 there is a high probability the market will consolidate near the resistance area.

The key feature in the trend development is the behavior of the long-term GMMA. The turn upwards in this group shows investors are prepared to pay more to get a position in Nissan.

However the long-term group has not yet turned strongly bullish. The short-term average in this group — 35 EMA (exponential moving average) — has not yet moved above the long-term average — 60 EMA. This doesn’t mean the breakout trend will fail, but it does show that investors remain wary of the speed of the trend change.

Full trend strength is shown when the long-term GMMA compresses and then begins to expand gain. The expansion shows investors are aggressive buyers on the price dips because they believe the long-term uptrend is sustainable.  The very nature of a weekly chart makes it a lagging indicator of sustainable trend change. However the weekly chart also allows us to put the trend breakout into a wider context of historical support and resistance.

New leaves are sometimes fragile and this momentum leaf sits at the end of a twig created by the fast rise from 12.50 to 14.50.

This momentum rise is part of a trend, but it is not a sustainable trend. As shown with the earlier rise from 6.00 the price may cluster near the upper edges of the short-term GMMA but eventually trader enthusiasm is not strong enough to sustain the momentum.

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The pullback tests first the lower edge of the short term GMMA and then the long term GMMA. The retreat to 11.00 is created by traders taking profits. The rebound is created by investors moving in because they feel a new uptrend is sustainable. Despite the impressive gains, this remains a momentum environment so a retest of the lower edges of the short-term GMMA is a high probability.  This may carry the price back to the minor resistance level between 13.00 and 12.50.

In the short term, this new leaf can fall off the twig. This provides opportunities for investors to enter the developing trend around 12.50. The behavior of the long-term GMMA will be critical in providing clues to investor reaction. Any rise above 14.50 faces many more established barriers and this changes the nature of the trend. Achieving the next 100 percent increase will be a hard slog in a slower and more stable trend.

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