Speculative unwind puts Nikkei uptrend to the testJapan 225 CFDFOREXCOM:JP225FOREXcomTuesday's sell-off was as brutal as it was necessary, flushing out speculative excess that had built up during the run to record highs. The focus now shifts to 68,782, the former record high from earlier this month. The level was tested once before and again on Tuesday, with the price briefly breaking below before snapping back into the close. Given the scale of the decline and the leverage embedded in many Asian equity markets, the risk of margin calls and distress selling in early trade cannot be ignored. How the price behaves around 68,782 may offer an important clue as to whether the correction has run its course or has further to go. RSI (14) continues to show bearish divergence, with momentum making lower highs as the price pushed to fresh records. MACD also appears close to crossing below its signal line, albeit while remaining in positive territory. Together, they provide a pair of cautionary signals for bulls. If the price were to break decisively below 68,782, traders could consider establishing shorts with a very tight stop above the level, targeting 67,000 initially, followed by 65,900 and potentially the uptrend from late March, which currently sits a little above 65,000. Conversely, if 68,782 continues to repel bearish probes, traders could consider establishing longs above the level with a very tight stop beneath, targeting a retest of the record high at 73,520. Of the two, the short side looks more attractive from a tactical perspective near-term given the magnitude of the recent advance and the warning signs from momentum. However, the broader bullish trend remains intact. The uptrend has not been broken and the key medium and longer-term moving averages continue to point higher with a positive slope. Good luck! DS