the week ahead for major stock indices 01 feb to 05 feb 2016 1795542016

Nikkei 225 – Pull-back before potential new rise (still a “snap-back rally”)

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Key Levels (1 to 3 weeks)

Pivot (key support): 17230

Resistances: 17740/840, 18350/530 & 19100

Next support: 16000/15800 

Medium-term (1 to 3 weeks) Outlook

Last week, the Japan 225 (proxy for the Nikkei 225) has drifted lower in the earlier part of last week but held above the previous 16480 medium-term pivotal support as expected. Thereafter, it has managed to reverse and continued its rally towards our first expected upside target at 17740/840; added by Bank of Japan’s latest monetary policy of negative interest rate (-0.1%) on excess reserves.

Please click on this link for a recap of our previous weekly outlook/strategy.

Let’s us take a look at the current technical elements to decipher what is in store for the Index this coming week. Firstly, the Index is still being capped by a resistance zone of 18350/18530 which is defined by the former trendline support (in dotted red, see weekly chart) from 14 October 2012 low and congestion area that has connected the previous swing highs of 09 September and 17 September 2015).  The next resistance to watch stands at 19100 which is the significant descending trendline that has linked the lower highs since June 2015 (printed a high of 20962) and also a Fibonacci cluster.

The daily (medium-term) RSI oscillator, a measure of price momentum has broken above the 50% level and its former trendline resistance and still has room for further upside potential before reaching its overbought region. But do note, that the longer-term (weekly) RSI oscillator has not turned bullish as it remains below its resistance and the 50% level. Therefore, any potential rally is considered as a countertrend within an expected primary bearish trend.

In the short-term, current price action has banged into its immediate resistance zone of 17740/840. In addition, the 4 hour (short-term) Stochastic oscillator has reached its extreme overbought level which it indicates the risk of a pull-back in price action at this juncture.

Therefore, we are now expecting a minor pull-back below 17740/840; holding above this week medium-term pivotal support at 17230 before another round of potential “snap-back rally” occurs to target the next resistance at 18350/530 with a maximum limit set at 19100.

On the other hand, failure to hold above the 17230 pivotal support is likely to invalidate the “snap-back rally” scenario for another round of decline to retest the 16000/15800 support.

Hang Seng Index – Potential final push up above 19000

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Key Levels (1 to 3 weeks)

Pivot (key support): 19000

Resistances: 20380 & 21000

Next support: 18200

Medium-term (1 to 3 weeks) Outlook

Last week, the Hong Kong 50 Index (proxy for the Hang Seng Index) has managed to recover after its initial pull-back to retest redefined 18900/500 support zone before it staged the expected rebound. Please click on this link for a recap of our previous weekly outlook/strategy.

In the long-term, the Index is still evolving within a bearish dynamic since the April 2015 high of 28620. Even though the weekly RSI oscillator has flashed a bullish divergence signal but it is still below the pull-back resistance. As seen from the daily chart, the Index is now attempting to stage a push towards the upper boundary (resistance) of the descending channel in place since 26 May 2015 high at 20380/21000 region which is also the 50%/61.8% Fibonacci retracement of the steep decline from 24 December 2015 high to 21 January 2016 low. In addition, the daily (medium-term) RSI oscillator is now approaching the its resistance and the 50% level (depicted by the pink box) which indicates limited upside potential for the Index.

On the shorter-term, the 4 hour Stochastic oscillator has started to turn down from its overbought region which highlights the risk of a pull-back towards the pull-back support and ascending trendline from the 21 January 2016 low that confluences at the 19000 level.

Therefore for this coming week, we have tightened the medium-term pivotal support to 19000 for a potential final push up to target the 20380 resistance (the former range bottom that was defined by the swing low areas of 24 August 2015 and 29 September 2015 and the pull-back resistance of the former long-term ascending channel’s bearish breakout) with a maximum limit set at the 21000 level.

However, a break below the 19000 pivotal support may see another round of decline towards the next support at 18200.

FTSE China A50 – Neutral between 9200 & 9770/670

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Key Levels (1 to 3 weeks)

Supports: 8770/670 & 8400/8000

Resistances: 9200, 9590 & 9950

Medium-term (1 to 3 weeks) Outlook

The China A50 Index (proxy for the FTSE China A50) has broken below 9075 lower neutrality zone as per defined in our previous weekly outlook/strategy and declined towards the “Double Top” bearish exit potential at 8770.

The 8870 level is now the lower boundary (support) of the bearish descending channel in place since 23 December 2015 high. In addition, the daily (medium-term) RSI oscillator has flashed a bullish divergence just above the oversold region which implies a slowdown in downside momentum.

This morning’s 01 February 2016 price action has declined but managed to hold above the 8770 level after a retest on it despite a weaker than expected China’s NBS Manufacturing PMI data of 49.4 for January 2016 (the lowest level since 3.5 years ago).

Even though the Index has managed to defend the 8770 support for now but the short-term (4 hour) Stochastic oscillator is still inching downwards towards its extreme oversold level which suggests a risk of another downleg in price action.  We are seeing mixed elements again, thus we are neutral for this week between 9200 and 8770/670. Only a break above 9200 may see a potential “relief rally” towards 9590 (the upper boundary of the descending channel).

DAX – Pull-back before new potential rise above 9700/9600 support

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Key Levels (1 to 3 weeks)

Intermediate support: 9700

Pivot (key support): 9600

Resistances: 9880/935 & 10165/280

Next support: 9400/300

Medium-term (1 to 3 weeks) Outlook

Last week, the German 30 Index (proxy for the DAX) has managed to shape the expected push up and hit our first medium-term upside target at 9880/935 before traded sideways due to weaker than expected European banks’ earnings results (Deutsche Bank in particular).

Since hitting the 9300 range support as defined by the swing lows area of “Black Monday” 24 August 2015 and 29 September 2015 three weeks on 21 January 2016, the Index has rallied by 6.7% to hit last week’s high of 9927. This upside movement is in line with our mean reversion/”snap-rally” scenario after a steep decline from 30 December 2015 high.

The daily (medium-term) RSI oscillator continues to remain above its trendline support and still has some room left for further potential upside before reaching its resistance. This observation in price momentum gives credit that for another potential upleg in the on-going  mean reversion/”snap-rally” scenario. The next significant medium-term resistance stands at the 10165/280 zone which is defined by the former swing low of 15 December 2015, a Fibonacci cluster (close to the 50% Fibonacci retracement of 01 December 2015 high to 21 January 2016 low + 1.00 Fibonacci projection of the upmove from 21 January 2016 low to 28 January 2016 high projected from 28 January 2016 low) and the upper boundary of the short-term bullish ascending channel in place since 21 January 2016 low.

The short-term (4 hour) Stochastic oscillator has started to exit from its overbought region which highlights the risk of a pull-back to test the lower boundary (support) of the ascending channel at 9700.

Overall the technical elements are still positive to support the current mean reversion/ “snap-back” rally scenario. Therefore, we expect a minor potential pull-back towards the 9700 intermediate support with a maximum limit set at the tightened medium-term pivotal support of 9600 before another potential up thrust occurs to target the 10165/280 resistance zone.

On the other hand, failure to hold above the 9600 pivotal support is likely to negate the “snap-back” rally scenario for a further decline to retest the 9300 range support.

S&P 500 –  Mean reversion/ “snap-back rally” remains intact above 1908 support

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Key Levels (1 to 3 weeks)

Intermediate support: 1908

Pivot (key support): 1873

Resistances: 1954/58 & 1994

Next support: 1820/11

Medium-term (1 to 3 weeks) Outlook

Last week, the U.S. SP 500 Index (proxy for the S&P 500) has managed to shape the expected push up of our mean reversion/ “snap-back” rally scenario and hit our the lower limit of our medium-term upside target at 1935. Please click on this link for a recap of our previous weekly outlook/strategy.

The daily (medium-term) RSI oscillator continues to inch upwards and it is now attempting to break above its trendline resistance which suggests that the on-going upside momentum seen in price action remains intact. The next resistance to watch stands at 1954 which is defined by the minor swing high of 13 January 2015 and the close to the 50% Fibonacci retracement of the decline from 02 December 2015 high to 20 January 2016 low.

On the shorter-term, the Index has started to evolve within a bullish ascending channel as seen from the 20 January 2016 low with its upper boundary (resistance) at around 1994 which also confluences closely with the former swing highs area of 28 August 2015 and 16 September 2015,61.8% Fibonacci retracement of the decline from 02 December 2015 high to 20 January 2016 low and the 1.382 Fibonacci projection of the up move from 20 January 2016 low to 22 January 2016 high projected from 26 January 2016 low.

Overall technical elements are still supporting another potential upleg in this on-going mean reversion/ “snap-back” rally. However, do expect a potential minor pull-back first towards the 1908 intermediate support (as indicated by the overbought reading seen in the 4 hour Stochastic oscillator); holding above the tightened medium-term pivotal support of 1873 before another push up to target the 1954/58 resistance. A break above 1958 is likely to open up scope for a further potential upside movement towards 1994.

On the flipside, failure to hold above the 1873 pivotal support may invalidate mean reversion/ “snap-back” rally scenario for a further decline to retest the 1820/11 range support/neckline of the impending bearish “Double Top” configuration.

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