the week ahead for major stock indices 04 july to 08 july 2016 potential major low seen melt up phas

S&P 500 – Potential minor pull-back first before new upleg

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Key Levels (1 to 3 weeks)

Intermediate support: 2056

Pivot (key support): 2030

Resistances: 2121 & 2138

Next support: 1995

Medium-term (1 to 3 weeks) Outlook

Maintain bullish bias but expect a potential short-term pull-back cannot be ruled out first.  Last week, the U.S. SP 500 Index (proxy for the S&P 500 futures) has managed to rally hit our expected medium-term target at 2083 and even tested the 2100 “stubborn” range top in place since 17 May 2015 high on last Friday, 01 July where it printed a high of 2108.

Please click on this link for a recap on our previous weekly technical outlook/strategy. New elements as follow:

• Since the post Brexit event low of 1991 seen on last Monday, 27 June, the Index has rallied by 5.8% to print a high of 2108 seen on last Friday, 01 July. Based on the 01 July 2016 closing price, the Index is only just a shy of 1.4% away from its current 52-week high, thus making the S&P 500 the strongest market among the major stock indices.
• Last week price action as a whole has formed a “Bullish Engulfing” candlestick pattern that covers the negative sentiment price action seen in the prior Brexit week. This observation indicates a strong reversal of sentiment from negative to positive. In addition, market breath remains positive as the percentage of stocks that hit new 52-week highs seen on the broader based NYSE Composite index has continued to increase steadily above its 5-year average as per recorded last week (refer to the 2^nd & 3rd charts).
• The intermediate resistance to watch will be at the 2100/121 (excess) level which is the range top in place since 17 May 2015 high and also a Fibonacci projection.
• Current price action is now testing the aforementioned 2100/121 resistance coupled with a bearish divergence signal being flashed out on the 4 hour (short-term) Stochastic oscillator. These observations suggest that short-term upside momentum has started to dissipate and the Index now faces the risk of a short-term pull-back/consolidation in price action.
• The intermediate support now rests at 2056 follow by the medium-term pivotal support of 2030 (the former 19 May 2016 swing low area + close to the 61.8% Fibonacci retracement of the recent rally from 27 June 2016 low to last Friday, 01 July high of 2108.

Therefore, the Index may see a short-term pull-back first below 2121 towards the intermediate support at 2056 with a maximum limit set the 2030 medium-term pivotal support before another potential upleg materialises to target the current all-time high at 2138 in the first step.

On the other hand, failure to hold above the 2030 medium-term pivotal support may negate the preferred bullish bias to see a slide to retest the 1995 support (last week swing low area that has been tested thrice in the past).

Nikkei 225 –  Potential major low/bottom seen at 14835, recovery  in progress

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Key Levels (1 to 3 weeks)

Intermediate support: 15430/500

Pivot (key support): 14835

Resistances: 15865, 16670 & 17240

Next support: 13900 (long-term pivot)

Medium-term (1 to 3 weeks) Outlook

Conviction low for a last push down, turn bullish. Last week, the Japan 225 (proxy for the Nikkei 225 futures) has staged the initial push up towards last week’s medium-term pivotal resistance at 15865 (printed a high of 15833 on Thurs, 30 June).  Even though current price action has continued to hover right below the 15865 medium-term pivotal resistance, technical elements and intermarket correlation analysis are not advocating for the initial preferred potential last push down scenario to take place below the 15865 level. Please click on this link for a recap on our previous weekly technical outlook/strategy. New elements as follow:

• Since the Brexit event low of 14835 seen on 24 June 2016, the Index has already rallied by 6.7% to last week high of 15833. In addition, the weekly (long-term) RSI oscillator has started to trace out a bullish divergence signal (higher highs in RSI versus similar lows seen in the conjunction price action of the Index). These observations suggest the downside momentum of price action has started to wane.
• The key medium-term resistance now stands at 16670 which is defined by the upper boundary of a medium-term descending range in place since 23 April 2016 high (depicted in dotted pink), the pull-back resistance of a former ascending range support from 12 February 2016 low (depicted in dotted purple) and a Fibonacci cluster.
• The key medium-term pivotal support for this week rests at 14835.
• Based on intermarket analysis, the USD/JPY has a strong direct correlation with the Nikkei 225. Price action of USD/JPY has continued to exhibit positive technical elements after the earlier plunge and test of its key long-term support zone of 101.25/100.70 post Brexit. The weekly RSI oscillator has flashed a bullish divergence signal at an extreme oversold level and the last week’s price action has formed a weekly “Doji-liked” candlestick pattern after a “Spinning top” pattern seen on the previous week (20 to 24 June) where Brexit occurred. All these observations suggest that downside pressure has started to lose momentum and a potential significant bullish reversal is imminent at this juncture.

Therefore based on the aforementioned elements, the earlier preferred “last push down scenario” has taken a backseat and higher probability is now in favour a potential major low that is likely to have  formed at the post Brexit low of 14835 (capitulation process where we have highlighted earlier in our prior research updates).

From an Elliot Wave Principal and fractal analysis perspective, the major downtrend cycle of the Index (wave IV) in place since June 2015 high may have ended at the 14835 post Brexit low and price action is now in the process of undergoing a significant recovery (multi-month) to complete the major uptrend cycle (final wave V) of a potential “melt-up” phase before a significant correction occurs. But bear in mind, this is a long-term projection where short to medium-term price actions/intermarket correlation can impact such projection, thus from a medium-term (1 to 3 weeks) perspective we are taking things one step at a time as the technical picture evolves.

For this week  as long as the 14835 medium-term pivotal support holds, the Index is likely to shape a further potential upside movement to target the next resistance at 16670 (upper boundary of the descending range). Only a break above 16670 may trigger a further rally towards 17240 in the first step.

On the other hand, failure to hold above the 14835 pivotal support is likely to invalidate the preferred bullish scenario for a deeper decline towards the key long-term support at 13900.

Hang Seng Index – Mixed elements at “Triangle range” top/resistance

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Key Levels (1 to 3 weeks)

Resistances: 21280, 21650 & 23500

Supports: 19790/560 & 18200/18060

Medium-term (1 to 3 weeks) Outlook

Upside target reached, turn neutral. Last week, the Hong Kong 50 Index (proxy for the Hang Seng Index futures) has reacted off from the 19880 support and rallied towards last week’s expected medium-term upside target/resistance at 21170 (printed a current intraday high of 21176 today, 04 July).

Please click on this link for a recap on our previous weekly technical outlook/strategy. New elements as follow:

• Current price action is now right below the 21280 upper limit/resistance) of the “Triangle range” in place since 21 April 2016 high which also confluences with a former long-term ascending trendlne support from 02 October 2011 major swing low area now turns pull-back resistance at a similar level of 21170 (see weekly & daily charts).
• The lower limit/support of the “Triangle range” configuration now rests at 19790/560.
• Observations seen from momentum indicators are mixed. Weekly (long-term) RSI oscillator is still below its pull-back resistance, daily (medium-term) RSI oscillator remains bullish above its ascending trendline support and 4 hour (short-term) Stochastic oscillator has reached an extreme overbought level.

Therefore due to mixed elements, it will be prudent to turn neutral at this juncture in terms of directional bias. Only a break above the “triangle range” resistance/top at 21280 is likely to trigger a further upside movement to target the next resistances at 21650 and 23500.

On the flipside, failure to hold above the “triangle range” bottom/support at 19790/560 may see a deeper decline to retest the 11 February 2016 swing low area at 18200/18060.

FTSE China A50 – Upside target/resistance almost reached, turn neutral

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Key Levels (1 to 3 weeks)

Resistances: 9700/840 & 11100

Supports: 9056 & 8630/560

Medium-term (1 to 3 weeks) Outlook

Turn neutral as Index is coming close to key range top at 9700/840.  Last week, the China A50 has rallied as expected from the medium-term pivotal support of 9056 and it is now coming close to the key range top target of 9700 (printed a current intraday high of 9524 on Monday, 4 July).

Please click on this link for a recap on our previous weekly technical outlook/strategy. New elements as follow:

• Current price action is now right below the key range top/resistance of 9700/840 which is also defined by a Fibonacci projection cluster and the 200-day Moving Average.
• Mixed observations from momentum indicators. The daily (medium-term) RSI oscillator remains positive above the 50% level but the shorter-term (4 hour) Stochastic oscillator has reached an extreme overbought level which suggests an imminent pull-back in price action at this juncture.
• The medium-term range support remains at 9056 which is defined by the ascending trendline in place after last year’s summer horrendous decline of 46% that formed a major swing low on 24 August 2016, recent minor swing lows area of 11 March/31 March 2016 and a Fibonacci cluster.

Therefore due to mixed elements, it will be prudent to turn neutral at this juncture in terms of directional bias. Only a break above 9700/840 is likely to trigger a further potential rally to target the major swing high areas of 09 September/23 December 2015 at 11100.

On the flipside, a break below the 9056 medium-term range support is likely to see a further slide to retest the February 2016 swing lows area of 8630/530.

DAX – Further potential push up towards range resistance

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Key Levels (1 to 3 weeks)

Intermediate support: 9730

Pivot (key support): 9510/430

Resistances: 10180 & 10530/650

Next support: 9120

Medium-term (1 to 3 weeks) Outlook

Maintain bullish stance. Last week, the German 30 Index (proxy for the DAX futures) has push up as expected from the lower limit of the “Expanding Wedge” configuration and hit our first medium-term target/resistance at 9780 (printed a high of 9805 on last Friday, 01 July). Please click on this link for a recap on our previous weekly technical outlook/strategy.

Latest technical elements as follow:

• The weekly (long-term) RSI oscillator has traced out a bullish divergence signal but it is still below its trendline resistance in place since 24 May 2016 high which should correspond with the upper boundary (resistance) of the long-term descending range seen in the price action of the Index now at 10530/650. The observation seen from the weekly (long-term) RSI oscillator suggests that upside momentum is building up.
• Based on the Elliot Wave Principal and fractal analysis, the Index may have completed the final 5/ wave of the intermediate/medium-term “Expanding Wedge” configuration (depicted in dotted purple) at 27 June 2016 low of 9213 (post Brexit). Therefore, it is likely that the major low is likely to have formed at 9213 where the Index has completed a (a), (b) (c) corrective wave of a major degree (multi-month) in place since 30 November 2015 high which implies that it is possible to see the start of the final bullish impulsive wave V (melt-up) phase before a significant bear market correction occurs to retrace the gains seen in this 7 year old primary bullish cycle in place since 08 March 2009 low.
• The key medium-term resistances now stands at 10180 (upper boundary of the “Expanding Wedge”) follow by the 10530/650 zone (swing high area of 21 April 2016, lower boundary of the long-term descending range in place since 12 April 2015 high and a Fibonacci cluster).
• The shorter-term (4 hour) Stochastic oscillator has exited from its overbought region and still has room to manoeuvre to the downside before reaching an extreme oversold level. These observations suggest a potential short-term pull-back in price action of the Index at this juncture/below 9780.
• This week medium-term pivotal support is set at 9510/430 which is defined by the former swing low areas of 08 April and 16 June 2016 as well as the 61.8% Fibonacci retracement of the recent rally from 27 June 2016 low to the current 04 July intraday high of 9812.

Therefore, the Index may see a minor/short-term pull-back first towards the intermediate support at 9650 with a maximum limit set at this week tightened medium-term pivotal support of 9510/430 before another potential upleg occurs to target the next resistance at 10180. A break above 10180 may trigger a further rally towards the key major resistance at 10530/650.

However, a break below the 9510/430 medium-term pivotal support is likely to invalidate the preferred bullish scenario for another round of decline towards the next support at 9120 (minor low of 24 February 2016) in the first step.

Charts are from Advantage TraderPro, eSignal & IndexIndicators.com

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