Surprise easing from the Bank of Japan (BOJ) at the end of October fueled gains in the Nikkei, but data Monday showing Japan unexpectedly entered a technical recession interrupted the uptrend and charts indicate further upside may be limited.
The BOJ surprised markets at the end of October by expanding its stimulus program, while the Government Pension Investment Fund readjusted its target allocations, increasing the amount of domestic stocks that it buys. Together, the initiatives pushed Japan's Nikkei to fresh seven-year highs above 17,000.
Growth data released on Monday damped optimism about further stock gains, however. The economy contracted an annualized 1.6 percent in the third quarter following a 7.3 percent contraction in the second, putting Japan in a technical recession and calling the effectiveness of Abenomics – Prime Minister Shinzo Abe's over one-year-old plan to kickstart the Japanese economy – into question.
A month ago we noted the limits for the Nikkei rise; these targets have been achieved. These same methods are used to define the downside limits for the Nikkei's retreat and the future upside limits for any recovery rebound rally.