The Nikkei 225 Takes on 20K, Again

There's been a lot of discussion about the major century and millennium levels in play for U.S. stocks, but on Friday, it was Japan's Nikkei 225 (N225 - 20,013.26) that took out a big round number. The Nikkei closed above 20,000 for the second week in a row, in a strong signal that Tokyo's benchmark equity index is getting comfortable north of the teens.

In fact, we're witnessing the Nikkei's most sustained -- and successful -- assault on 20,000 in over a year. Friday's closing feat is the culmination of an attempt on 20,000 that began just about a month ago, with the index's May peak arriving less than 2 points short of this major milestone. By contrast, a two-week attempt to tackle 20K in late November and early December 2015 yielded only one close above the millennium marker (and on a Tuesday, at that).

That thumping rejection of a year and a half ago was made even more notable by the fact that the N225 had spent the bulk of a preceding four-month stretch between mid-April and mid-August 2015 cruising comfortably above the 20,000 level. Prior to this episode, you have to look as far back as April 2000 to find the Nikkei at 20K.

Given this stark reminder that Nikkei millennium levels are not so easily brought to heel, we can clearly see the next major round-number tests for the index: there's the June 2 multi-year intraday high around 20,240; the weekly closing highs of June and August 2015 just above 20,700; and the highs around 20,950 recorded in those same two months. Back-to-back Friday closes above 20K aside, it's a little early for a Nikkei victory lap.

Investors certainly seem skeptical of Tokyo's latest incursion on this psychologically significant price point. The iShares MSCI Japan ETF (EWJ) has seen nearly $397 million in outflows this year, per etf.com -- while the WisdomTree Japan Hedged Equity Fund (DXJ) logged its biggest single day of outflows in the past year as recently as June 5, to the tune of $173.84 million.

(That said, if traders are wary of a potential spike in the safe-haven yen, it hasn't happened yet; the dollar/yen spot has been drifting lower all year, despite the generally inescapable cloud of geopolitical uncertainty covering the market during this same time frame.)

On a possible pullback from 20,000, traders should watch likely support at 19,500 -- site of the Nikkei's post-bull gap lows in May, and 20% above the index's August/November 2016 lows around 16,250. A move below this level would suggest a more meaningful correction for the Japanese index is at hand, and would most likely spark a fresh wave of outflows from Japanese equities.