HSBC remains bullish on US, Japan equities as Nikkei and S&P charts cool into ranges

Comparing technicals and outlook: Nikkei and S&P 500

HSBC's Q4 view is based on earnings growth expanding rather than valuations being stretched, with a specific focus on the US and Japan. The weekly charts for both indices largely support that reading, though they are not currently telling the same story.

Nikkei 225: uptrend remains intact, range compresses

The multi-year rally from the 2025 low is still structurally sound, with prices remaining above the long-term uptrend line that has been in place since the March 2026 low around 51,000. More recently, however, weekly highs have been declining, from the late-June peak near 73,600 through the August high near 69,600 to the current vicinity of 63,700. This pattern – a rising support line below and a descending series of lower highs above – is creating a converging range, not a definitive top.

This aligns well with HSBC's more positive outlook on Japan. Corporate governance reforms and a gradual normalisation by the BoJ are longer-term supports, and the chart indicates the primary uptrend has not been broken – only that momentum has cooled into a squeeze following a very sharp rally in June. A move that reclaims the upper 60,000s on a closing basis would strengthen the argument that this is a pause within the trend, not a reversal.

S&P 500: stair-stepping pattern persists, latest leg is shorter

The S&P 500's rally from the 2025 low has unfolded in a sequence of consolidation zones followed by breakouts, notably around 6,100, then 6,900-7,000, and then 7,500 – each serving as a base before the next leg up. That structure remains intact and aligns with HSBC's assessment that earnings, not multiple expansion, have been driving the move.

It is worth noting, however, that the move from the last shelf near 7,500 to the recent high around 7,800 was significantly smaller than the two preceding legs. Price has now retreated into the 7,570-7,650 range, close to the previous shelf. The uptrend structure has not been broken, but this latest leg has been shallower, making the current pullback to support a more significant test than previous ones. If the level holds, the stair-step pattern will continue; a clean break of the 7,570 shelf on a closing basis would be the first notable breach of that structure since the rally resumed in April.

Watchlist for next moves

For the Nikkei, watch for a decisive close outside the 59,000-66,000 compression zone in either direction. For the S&P, the key is whether the 7,570-7,600 shelf holds on a weekly close, as a break there would be more significant given that the latest leg higher has already lost some of its prior momentum.

Chart lesson

A technical trend can still be intact even as each new leg becomes smaller. That diminishing momentum is not a reversal, but it is frequently the earliest observable indication that a market needs to slow down or take more time to construct a base before confirming the next advance.

Technical levels and indicators serve as reference points, not guarantees. Market conditions can shift rapidly, especially during periods of high volatility. Trade or invest at your own risk and employ risk control measures suitable for your situation.