The Nikkei 225 Surge: How to Capitalize on Japan’s Top Index Like a Pro

The Nikkei 225 is comprised of 225 stocks selected from domestic common stocks on the Tokyo Stock Exchange. It is price-weighted, which means the index is an average of the share prices of all the companies listed.

Because each company's stock is weighted by its price per share, the Nikkei tends to be influenced by high-priced stocks such as technology stocks.

The Nikkei 225 Index has been in an uptrend since May last year with the 100-day moving average red line crossing above the 200-day moving average blue line.

The bullish rally started aggressively after breaking the key 34,000 resistance as we began 2024 with the technology sector in play.

We have been capped below that key resistance for the last 6 months in 2023 and finally that level gave way which opened the way for the uptrend to continue much faster.

It rallied from 34,000 to 41,000 in 3 months till March 2024 with all trend indicators, like the moving averages looking positive.

However, profit taking returned in March as global markets also took a beating with talks above rate cuts pushing back further.

In April 2024, thankfully we saw some bargain hunting returning around 37,000 as buyers started to load up on some of the blue chips.

The short-term trend as seen from the 20-day moving average green line, also started to stabilize and reversed up after the selling in March.

We saw a key resistance at 39,500 for the Nikkei 225 Index for the past 2 months where it just couldn’t breach even though there were signs of a short-term uptrend slowly forming back.

Finally, over the past few days as we began the 2nd half of the year 2024, this KEY resistance has been broken and we are now at around 40,000.

This can be something meaningful and can potentially lead to a reversal back to 41,000 as we attempt to break it again.

As long as 39,500 is a support for the Nikkei 225 Index, a rise towards these targets seems likely and a break of 41,000 can see a higher target to 45,000.

Entries can be taken above 39,500 with a stop loss below 39,000 just to protect the downside risk.

So, how does one take a position in the entire Nikkei 225 Index without buying the 225 stocks that make up the index?

Well, one can buy the Nikkei 225 structured warrant listed on the SGX to profit from more upside.

It allows you to multiply your returns with a smaller amount of capital.

It must however be noted that warrants are for short-term positioning only, such as wanting to position for a short-term break above the 41,000 level toward a 45,000 target.

To pick a suitable warrant to trade such a view, I would use the Warrant Selector tool to help me choose from the different Nikkei warrants available. As I am bullish, I will pick a call – which moves in line with the underlying.

As I will only enter into a call when the Nikkei breaks above 41,000, I will change the “Last Price” from its current 40,950 level to around 41,100, so that the “Current price” of the featured warrants on the page will update accordingly.

I then type in my target level of 45,000 and increase the number of weeks to see the expected price performance of the warrants.

We can see from the results that the warrants will gain 65.2% to 157.8% if the Nikkei got to 45,000 in a week.

The warrant gains are lesser, at between 63.4% to 102.4% if the Nikkei index got to my target level only 10 weeks later, due to time decay setting in.

The maximum holding period via these Nikkei warrants are 11 weeks, as the warrants would have expired, so this is something I need to bear in mind.

As for which warrant I would pick, it will depend on the capital outlay as well as risk appetite that I am comfortable with.

While TGDW will gain the most if Nikkei hit my target level in 10 weeks, it will also give me the biggest percentage loss if my view was wrong.

For easy reference, below is the table of Nikkei Structured Warrants listed on SGX and their codes.

The sharing on how one can take a position using warrants has been contributed by Macquarie warrants who is the issuer of these warrants listed on SGX.

Hope you have found the above content useful 😃 

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Look forward to see you on the inside!

- Joey