the week ahead for major stock indices 03 oct to 07 oct potential medium term upside movement to res

S&P 500 – 2154/35 remains the support to watch for another potential upleg

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Key Levels (1 to 3 weeks)

Intermediate support: 2154

Pivot (key support): 2135

Resistances: 2194/2205 & 2220/30

Next supports: 2110/100 (downside trigger) & 1991

Medium-term (1 to 3 weeks) Outlook

Last week, the U.S. SP 500 Index (proxy for the S&P 500 futures) has managed to hold above the predefined 2135 medium-term pivotal support and the intermediate ascending trendline in place since the 12 September 2016 medium-term swing low area despite the global risk-off behaviour triggered by the ongoing legal woes of Deutsche Bank as it needed to settle a US$14 billion penalty imposed by the U.S. Department of Justice over mis-selling of mortgage back securities during 2007/08.

Market talk had started to circulate that Deutsche Bank did not have sufficient capital to meet such hefty fine despite its CEO reassurance. Please click here for a recap on our previous weekly technical outlook/strategy. Key elements are as follow:

• The intermediate ascending trendline (depicted in light green) in place since the 12 September 2016 medium-term swing low area is now acting as a support at 2154 (see 4 hour chart).
• The medium-term pivotal support remains at 2135 which is defined by lower boundary of a medium-term ascending channel in place since 11 February 2016 low and the 61.8% Fibonacci retracement of the up move from 12 September 2016 low to 22 September 2016 high of 2180 (see daily & 4 charts).
• The intermediate resistance remains at 2194/2205 which is defined by the recent all-time high printed in August 2016, the upper boundary of an ascending range configuration (depicted in red) and a Fibonacci projection cluster (see 4 hour chart).
• The key medium-term resistance stands at 2220/30 which is defined by a Fibonacci cluster (see daily & 4 hour charts).
• The daily RSI oscillator is now coming close to a trendline resistance (depicted in red) coupled with the shorter-term (4 hour) Stochastic oscillator that is hovering close to an extreme overbought level. These observations suggest that the Index may see another round of pull-back at the 2194/2205 resistance zone.
• The growth oriented/high beta benchmark Nasdaq 100 has continued to outperform which is positive for the S&P 500 (laggard) as it is likely to follow suit to make a potential new high in the final upleg of the ongoing “melt-up” phase (refer to the last chart).

Maintain bullish bias. The Index is likely to see an initial push up to test the intermediate resistance zone of 2194/2205 before another round of pull-back towards the intermediate support at 2154 (lower boundary of the ascending range). Thereafter, another potential upleg is likely to materialise to target the next resistance at 2220/30.

On the other hand, failure to hold above the 2135 medium-term pivotal support may invalidate the preferred bullish scenario for a choppy decline to retest the key pull-back support zone of 2110/100. Only a clear break below 2100 (daily close) is likely to trigger a deeper decline towards the next support at 1991.

Nikkei 225 -  Potential push up within sideways range configuration 

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Key Levels (1 to 3 weeks)

Intermediate support: 16530

Pivot (key support): 16340

Resistances: 17165 & 17500/700

Next support: 15830

Medium-term (1 to 3 weeks) Outlook

Last week, the Japan 225 Index (proxy for the Nikkei 225 futures) has continued to trade sideways and interestingly, every sell-off is being tested but held by the 16340 medium-term pivotal support. From an intermarket analysis perspective, the USD/JPY which has a direct correlation with the movement of the Nikkei 225 has continued to hold above the upper limit of the long-term key support zone at 100.00. This observation suggests that the Nikkei 225 is likely to be supported at the 16340 level.

No major changes in technical elements, we maintain our bullish bias as long as the 16340 medium-term pivotal holds, the Index is likely to stage a potential push up to retest the 17165 intermediate range top in place since 31 May 2016. A break above 17165 may open up scope for a further rally to target the key long-term resistance zone at 17500/700 (neckline of the bullish “basing” formation, descending trendline in place since 21 June 2016 high and a Fibonacci cluster).

However, a break below the 16340 medium-term pivotal support is likely to invalidate the preferred push up scenario for a deeper decline towards the next support at 15830 (former medium-term swing high areas of 30 June/04 July 2016 & close to the  61.8% Fibonacci retracement of the up move from 24 June 2016 low to 02 September 2016 high).

Hang Seng Index – Potential bullish breakout from “symmetrical triangle” range 

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Key Levels (1 to 3 weeks)

Intermediate support: 23260

Pivot (key support): 23000

Resistances: 24500 & 25400

Next support: 21650/380

Medium-term (1 to 3 weeks) Outlook

Last week, the Hong Kong 50 Index (proxy for Hang Seng Index futures) has continued to trade in a sideways fashion. It has managed to hold above the predefined 23000 medium-term pivotal support as it digested the bout of risk aversion triggered by the Deutsche Bank debacle.

Since the high of 24406 printed on 09 September 2016, the Index has appeared to be consolidating in a “symmetrical triangle” configuration with its lower boundary now coming to act as support at 23260. Elliot wave principal and fractal analysis suggest that the on-going consolidate is likely to end soon after one more potential downleg to test the lower boundary of the “symmetrical triangle” at around 23260 before it stages a potential bullish breakout to target the next resistances at 24500 and 25400.

However, a break below the 23000 medium-term pivotal support is likely to invalidate the preferred bullish scenario for a deeper decline towards the next support at 21650/380 (the pull-back support zone of the former “Triangle range” bullish breakout & close to 61.8% Fibonacci retracement of the current up move from 24 June 2016 low to 09 September 2016 high of 24406).

ASX 200 – 5500 almost met where a potential corrective decline looms

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Key Levels (1 to 3 weeks)

Pivot (key resistance): 5500/5520

Supports: 5436, 5360 & 5320/300

Next resistance: 5580/5610

Medium-term (1 to 3 weeks) Outlook

Last week, the Australia 200 Index (proxy for the ASX 200 futures) has managed to stage the expected rebound around the predefined intermediate support of 5390 (printed a low of 5370 on 27 September) and it is now coming close to our expected upside target/resistance of 5500/5520 (printed a current intraday high of 5495 on 03 October 2016).

Please click here for a recap on our previous weekly technical outlook/strategy. Key elements are as follow:

• The Index has started to shape a medium-term bearish “Ascending Wedge” (depicted in pink) right below the 5500/5520 resistance where the upper boundary of the “Ascending Wedge” also confluences with the descending trendline resistance (depicted in dotted red) in place since the medium-term swing high of 01 August 2016 (see 4 hour chart).
• In conjunction, the 4 hour Stochastic oscillator has flashed a bearish divergence signal at its overbought region which suggests that the upside momentum of the recent up move has started to wane. These observations suggest that the Index now faces the risk of a decline at this juncture.
• The medium-term support to watch rests at 5360 which is close to the former minor swing low area of 27 September 2016 and the 38.2% Fibonacci retracement of the recent up move from 14 September 2016 low to today’s intraday high at 5495 (see 4 hour chart).

Therefore, the Index now faces the risk of a potential corrective decline to retrace the recent 6.5% up move from 14 September 2016 low. As long as the 5500/5520 medium-term pivotal resistance is not surpassed, the Index is likely to shape a slide to test the lower boundary of the “Ascending Wedge” at 5436 and a break below it may add impetus for a further down move to target 5360 with a maximum limit set at 5320/300 before another potential upleg materialises.

On the other hand, a clearance above the 5520 medium-term pivotal resistance is likely to invalidate the preferred corrective decline scenario to see the continuation of the up move to target the next resistance at 5580/5610.

DAX – Potential recovery above 10380/230 support

Deutsche Bank AG

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Key Levels (1 to 3 weeks)

Intermediate support: 10380

Pivot (key support): 10230

Resistances: 10700 & 10990/11190

Next support: 9760

Medium-term (1 to 3 weeks) Outlook

Last week, the Germany 30 Index (proxy for the DAX futures) was the worst performer among the major benchmark indices as it has staged a decline of 4% to print a low of 10184 on Friday, 30 September triggered by negative news flow on Deutsche Bank over its inability to raise enough capital to settle a hefty US$14 billion penalty imposed by the U.S. Department of Justice over mis-selling of mortgage back securities during 2007/08.

Interestingly, the Index had challenged the 10230 excess medium-term pivotal support before it did a sharp upside reversal seen on last Friday in parallel with the stock price of Deutsche Bank at its key support of EUR10.00.  An unconfirmed media report had stated that Deutsche Bank and the U.S. Department of Justice were closed to an agreement to reduce the fine to US$5.4 billion which has eased the risk aversion behaviour among market participants.

Key elements as follow:

• Last Friday, 30 September price action has managed to find support at the significant excess support of 10230 which is defined by the key pull-back support (depicted in dotted green) of the former long-term descending range bullish breakout (see weekly chart).
• In terms of fractal analysis, the current decline in price action in place since 15 August 2016 high of 10806 has shape a similar “Expanding Wedge” (depicted in dotted purple) consolidation seen in the recent months from 21 April 2016 to 24 June 2016 before the price action of the Index reversed to the upside. Interestingly, the current similar ‘Expanding Wedge” formation’s lower boundary (support) also confluences with the 10230 excess support level (see daily chart).
• Based on the Elliot Wave Principal and fractal analysis, last Friday, 30 September decline is likely to be the final 5^th wave of the aforementioned “Expanding Wedge” which completes the consolidation price movement in place since 15 August 2016 high. Therefore, the Index may now resume its medium-term impulsive upward movement/structure.
• Technical elements have started to turn positive at least in the medium-term (1 to 3 weeks) for Deutsche Bank which is likely to ease the recent strains seen in risk assets and it will be beneficial for the DAX (refer to the last chart).
• The upper boundary of the “Expanding Wedge” is now acting as an intermediate resistance at  10700 where the Index may shape a minor pull-back due to a current extreme overbought condition seen in the shorter-term (4 hour) Stochastic oscillator (see 4 hour chart).
• The significant medium-term resistance remains at the 10990/11190 zone which is defined a Fibonacci projection cluster.

Therefore, the Index is now likely to shape a potential recovery as risk aversion behaviour eases. In the short-term, the Index may shape a minor pull-back first at the 10700 intermediate resistance towards the 10380 intermediate support with a maximum limit set at the 10230 medium-term pivotal support before another potential upleg materialises to target the next resistance at 10990/11190.

However, a break below the 10380 medium-term pivotal support is likely to invalidate the preferred recovery scenario for a deeper decline towards the next support at 9760 (former medium-term swing high area of 30 June/04 July 2016 & 61.8% Fibonacci retracement of the entire up move from 24 June 2016 low to 15 August 2016 high).

Charts are from City Index Advantage TraderPro & eSignal

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