The Japan 225 stock index (cash) is trading near the June 16 top of 34,006 – a more than three-decade high – as it extends its rebound from last week’s lows. However, the prospect of further gains and hitting fresh 33-year highs is looking a bit questionable amid not very encouraging signals from the momentum indicators.

The fast stochastic has entered the overbought region above 80, suggesting that this latest upleg is running on limited juice. The MACD, meanwhile, has started to edge up again, although it remains below its red signal line, which continues to slope downwards.

On the positive side, the price action is no longer breaching the upper Bollinger Band after the latest correction and so there is some scope for additional upside in the near term. Should the index aim higher, the upper Bollinger band around 34,180 could cap the advances soon after the 34,000 level is surpassed. Further up, the 361.8% Fibonacci extension of the March downleg could stand in the way at 34,655, after which the focus would turn on the 36,000 handle, which corresponds with the 423.6% Fibonacci extension.

However, if the index is unable to break past the June peak, the mid-Bollinger Band, which is also the 20-day simple moving average (SMA), could deter sellers just above the 33,000 level. But a break lower could push the price past the lower Bollinger Band slightly below the 32,000 mark, accelerating the decline until the 50-day SMA at 31,228 and shifting the short-term bias to negative.

To sum up, there’s a reasonable chance that there is enough positive momentum to carry the index past the June peak to fresh highs before fizzling out. Such a move would reinforce the bullish medium-term picture. However, in the event of a pullback, the uptrend should stay intact as long as the price holds above the 50-day SMA, whereas a drop towards the 30,000 would risk shifting the outlook to bearish.