Japanese stocks rose at the start of the week, building on last Friday’s strong performance in the U.S. markets. The economy also got a boost as Japan’s Q1 GDP growth was updated from -0.7% to -0.2%. The stock market is struggling at the 38,500 level, which it has failed to break through on three occasions. If this level is surpassed, there could be potential for more gains, but for now, it remains a challenge. At the week’s start, market movements reflect the positive trends seen in the U.S. on Friday, where stocks rose across the board. This buying enthusiasm seems to have positively influenced Japanese markets, lifting overall sentiment. The revised GDP figure from Japan—changing from a sharp -0.7% to a less severe -0.2%—adds to this upbeat feeling. It suggests the economy is not as weak as initially thought, indicating a more stable situation for investors. However, despite this positive news, traders are still cautious. The stock index has hit resistance at 38,500 multiple times, with no successful break higher. This creates a technical barrier. While buyers are present, they are not strong enough to outmatch the sellers at this price level. We should view this resistance as a key point. If it is broken with significant volume, we could see a new upward phase develop. Until then, we can expect trading to remain range-bound. Prices might stabilize or even pull back slightly if buying momentum weakens. In derivative markets, especially with short-term instruments, these levels can become more sensitive. A move toward 38,500 without strong backing may draw selling pressure once again. Looking at volatility trends, there has been slight pressure in implied volatility metrics, especially in front-month options, suggesting that short-term expectations are subdued. This creates an opportunity for low-volatility strategies, although any positioning should allow for a quick exit if resistance breaks. It’s also important to monitor the options skew. There has been an increase in demand for calls near the 38,500 mark, indicating that traders are willing to pay more for options that protect against upward movements or to speculate on them. This shows growing interest, though some skepticism remains. We can see this as a gradual shift rather than a rush into positions. Practically speaking, we need to track any clear closes above 38,500 with broad market support. If this occurs, options activity would likely show the first signs—look for rising open interest and adjustments in short-term contracts. Futures actions should also display commitment, seen through upward-trending open interest and increased delta buying. Volume is key. Breakouts with low volume are often just market noise. We need a breakout with strong volume and narrow bid-ask spreads to take it seriously. If not, a fourth failure at this resistance could shift market sentiment once again, potentially leading to short-term sell-offs or adjustments in volatility, particularly in contracts expiring within the week. This month, there are few significant macroeconomic releases, but market stability isn’t solely due to this data. The current hesitation reflects a reluctance to open long positions when the risk-reward ratio is unfavorable. Here, patience is more valuable than forecasts. Until a clear shift occurs, whether it’s a substantial breakout or a surprising economic development, the wise strategy is to stay flexible and adapt as necessary.

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