weekly technical outlook on major stock indices 23 jan to 27 jan sp 500 at a critical juncture 26850

S&P 500 – Due for a potential bullish breakout into major risk zone

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Key Levels (1 to 3 weeks)

Pivot (key support): 2257/54      

Resistances: 2303 & 2326/35

Next supports: 2214 & 2178

Medium-term (1 to 3 weeks) Outlook

Last week, the U.S. S&P 500 Index (proxy for the S&P 500 futures) has managed to hold the 2257/54 medium-term pivotal support and traded sideways for the whole week even after U.S. President Donald Trump’s “America First” Inauguration Day speech that lingered with an air of protectionism.

The Index has now started to display a “volatility squeeze” that has a relatively lowest/tightest value since 2010 which suggests that price action is now due for a breakout.

Technical elements from Elliot Wave Principal/fractal analysis are still advocating for a potential last upleg towards the key major risk zone of 2326/35 before a correction sets in. Right now as seen on the daily chart, there are now two latest negative technical signs that suggest the Index is fast approaching a major inflection zone before a correction materialises;

• Since the 11 February 2016 low of 1807, the Index has traced out a bearish “Ascending Wedge” configuration with its upper limit at around 2335. This type of chart configuration is usually seen at the end of a pronounced uptrend.
• The daily RSI oscillator is still holding above its support and the 50% level but it has started to trace out a bearish divergence signal. This observation suggests that upside momentum of the up move from 09 Nov 2016 has started to abate.

This coming week, we will see several heavy weights from the Technology and Materials sectors report their respective Q4 2016 earnings as follow:

• 24 January (Tues) – Verizon Communications (VZ), 0.89 EPS consensus
• 24 January (Tues) – Du Pont (DD), 0.42 EPS consensus
• 26 January (Thurs) – Microsoft (MSFT), 0.79 EPS consensus
• 26 January (Thurs) – Intel (INTC), 0.75 EPS consensus
• 26 January (Thurs) – Alphabet (GOOGL), 9.62 EPS consensus
• 26 January (Thurs) – Dow Chemical (DOW), 0.88 EPS consensus

As seen from the technical chart of the Materials ETF (XLB), it is still showing bullish elements to advocate for a further potential upleg towards the next resistances at 53.70 before 57.30. Even the Technology ETF (XLK) still has a bit of room for potential upside movement (4%) towards the upper limit of its key long-term resistance zone at 51.90. Therefore, these two sectors (Technology & Materials) may act as the catalyst for a potential bullish breakout on the S&P 500 from its current tight trading range.

Therefore, as long as the 2257/54 medium-term pivotal support holds, the Index is likely to shape the potential final push up towards 2303 before 2326/35.

On the other hand, failure to hold above 2257/54 may invalidate the preferred bullish scenario to see the start of the pronounced correction to test the next supports at 2214 and 2178 in the first step.

Nikkei 225 – Potential corrective up move before new downleg

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Key Levels (1 to 3 weeks)

Intermediate resistance: 19380

Pivot (key resistance): 19520

Supports: 18600 & 18455/230

Next resistance: 19860/20000

Medium-term (1 to 3 weeks) Outlook

Last week, the Japan 225 Index (proxy for the Nikkei 225 futures) has staged the expected bearish breakdown below 18930 and tumbled close to the first medium-term target/support at 18600 (printed a low of 18645 on 18 January 2017 before it staged a rebound).  Please click here for a recap on our prior weekly technical outlook.

Current technical elements are suggesting a potential rebound before a new downleg materialises;

• Based on the Elliot Waver Principal and fractal analysis, the decline from 09 January 2017 high of 19713 to 18 January 2017 low of 18645 (close to the 18600 support) is likely the end of a bearish impulsive wave/cycle of an intermediate degree, labelled as 1/ and the on-going rebound is considered as corrective in nature (“dead cat bounce”) to retrace the prior down move from the 19713 high.  As long as 18800/700 holds, the Index is likely to see another round of corrective wave/rebound towards the 19380/520 zone to complete the potential corrective wave 2/ before the next intermediate degree bearish impulsive wave unfolds.
• The shorter-term 4 hour Stochastic oscillator is now coming close to an extreme oversold level. This observation suggests that the downside momentum of the current down move is overstretched where a mean reversion of price action to the upside is likely to occur at this juncture.

Therefore, the Index may see another round of potential “dead cat bounce” towards the intermediate resistance at 19380 with a maximum limit set at the 19520 medium-term pivotal resistance before another downleg materialises to target the supports at 18600 before 18455/230.

However, a clearance above 19520 is likely to negate the preferred bearish view to revive the “squeeze up” scenario towards the 19860/20000 major key resistance zone.

Hang Seng Index -  23100 remains the key resistance to watch

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Key Levels (1 to 3 weeks)

Pivot (key resistance): 23100

Supports: 22460 & 22130/21920

Next resistance: 24100

Medium-term (1 to 3 weeks) Outlook

The Hong Kong 50 Index (proxy for Hang Seng Index futures) has attempted to stage a push up but failed right at the 23100 medium-term pivotal resistance as expected. Please click here for a recap on our prior weekly technical outlook.

Technical elements remain unchanged. As long as the 23100 medium-term pivotal resistance is not surpassed, the Index may see further potential downside pressure to test the supports at 22460 before 22130/21920 in the first step.

On the other hand, a clearance above 23100 may invalidate the preferred bearish scenario to see a squeeze up towards the next resistance at 24100.

ASX 200 – Target/support almost reached at 5580, risk of corrective rebound first

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Key Levels (1 to 3 weeks)

Intermediate resistance: 5710

Pivot (key resistance): 5765

Supports: 5580/70 & 5400

Next resistance: 5830 & 6000 (key long-term resistance)

Medium-term (1 to 3 weeks) Outlook

The Australia 200 Index (proxy for the ASX 200 futures) has tumbled as expected and almost hit the medium-term target/support at 5580 (printed an intraday low of 5606 for today, 23 January 2017). Please click here for a recap on our prior weekly technical outlook.

Current technical elements are suggesting a potential rebound before a new downleg materialises;

• Based on the Elliot Waver Principal and fractal analysis, the decline from 09 January 2017 high of 5830 to 23 January 2017 intraday low of 5606 (close to the 5580 support) is likely the end of a bearish impulsive wave/cycle of an intermediate degree, labelled as 1/. The Index may now shape a corrective rebound (“dead cat bounce”) to retrace the on-going down move from the 5830 high.  As long as 5580/70 holds, the Index is likely to see a corrective wave/rebound towards the 5710/65 zone to complete the potential corrective wave 2/ before the next intermediate degree bearish impulsive wave unfolds.
• The shorter-term 4 hour Stochastic oscillator has dipped down to an extreme oversold level. This observation suggests that the downside momentum of the current down move is overstretched where a mean reversion of price action to the upside is likely to occur at this juncture.

Therefore, the Index may see a potential “dead cat bounce” at this juncture towards the intermediate resistance at 5710 with a maximum limit set at the 5765 medium-term pivotal resistance before another downleg materialises to target the supports at 5580/70 before 5400.

On the other hand, a clearance above 5765 is likely to invalidate the preferred bearish view for a squeeze up to retest 5830 before targeting the key long-term resistance at 6000.

DAX – Elements remain mixed

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Key Levels (1 to 3 weeks)

Resistances: 11800, 12020 & 12200

Supports: 11360 & 10810

Medium-term (1 to 3 weeks) Outlook

Last week, the Germany 30 Index (proxy for the DAX futures) has traded sideways within the 11800 and 11360 neutrality range.

Technical elements remain mixed and only a break (daily close) above 11800 is likely to see a potential push up towards 12020 and even 12200 next.

Charts are from City Index Advantage TraderPro & eSignal

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