the week ahead for major stock indices 06 to 10 june 2016 sideways with risk of mean reversion towar

S&P 500 – Potential bearish breakdown below 2085 support

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Key Levels (1 to 3 weeks)

Pivot (key resistance): 2110

Supports: 2085 (trigger) & 2058/54

Next resistances:  2138

Medium-term (1 to 3 weeks) Outlook

Potential bearish breakout looms. Last week, the U.S. SP 500 Index (proxy for the S&P 500 futures) has traded a tight range of 22 points and within our predefined expected medium-term neutrality range of 2110 and 2085. Please click on this link for a recap on our previous weekly technical outlook/strategy. New technical elements are as follow:

• The Index has tested but failed to have clear break above the 2100 descending trendline resistance in place since 17 May 2015 high. The previous failure break occurred on 20 April 2016 where it recorded a close of 2102 (above 2100) but failed to make any follow through the next day as it recorded a close of 2091 which lead to a decline of 3.14% to print a recent low of 2025 on 19 May 2016.
• Volatility as measured by the Bollinger Bandwidth has declined in relative terms with the 20 period moving average of price action The current daily Bollinger Bandwidth reading is now a 3-month low since March 2016 where it implies that the recent medium-term choppy sideways movement in place since 20 April 2016 high is about to end where a potential directional move may occur at this juncture (see daily chart).
• On the shorter-term, the Index has broken and retested its former ascending trendline support (in purple) from 19 May 2016 which indicates the first sign of weakness in the current short-term uptrend in place since 19 May 2016 low (see 4 hour chart).
• The recent rally seen last week from 19 May 2016 low of 2040 (the failure breakout of the bearish “Head & Shoulders” pattern) of the S&P 500 has moved in similar “lockstep” with the WTI crude oil. The direct correlation between S&P 500 and WTI has started to take shape again as seen on overlay chart between S&P 500 E-mini futures and the WTI crude oil futures and most interestingly, the recovery seen in the S&P 500 on 02 June 2016 occurred at the same time on the WTI at 1400 GMT (see 4^th chart).
• The recent rally seen in the WTI crude oil futures (July) has stalled at the 49.42 resistance and appears vulnerable for a potential breakdown below the intermediate support at 48.30, ascending channel’s lower boundary. Given its direct correlation with the S&P 500 E-mini futures, this observation suggests a looming potential medium-term bearish breakdown on the U.S. SP 500 Index from its current choppy sideways range (see last chart).
• The key medium-term support now rests at 2058/54 which is defined by the 61.8% Fibonacci retracement of the swift rally seen from 19 May 2016 low to 03 June 2016 high of 2107 and the lower boundary of the ascending channel from 11 February 2016 low.

Therefore as long as the 2110 medium-term pivotal resistance is not surpassed and a break below the 2085 intermediate support is likely to trigger at least a potential downside movement to target the next support at 2058/54 within a longer-term range configuration.

However, a clearance above the 2110 medium-term pivotal resistance is likely to invalidate the expected bearish scenario for a further push up to retest the current all-time/52-week high at 2138.

Nikkei 225 – Minor rebound before further potential push down towards ascending range support

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Key Levels (1 to 3 weeks)

Intermediate resistance: 16760

Pivot (key resistance): 16920/17015

Support: 16170/16050

Next resistances: 17700/900

Medium-term (1 to 3 weeks) Outlook

Turn bearish for potential push down towards range support. Last week, the Japan 225 (proxy for the Nikkei 225 futures) has broken below the 16740 medium-term pivotal support and invalidated the preferred rebound scenario towards the top of the ascending range. New technical elements are as follow:

• The Index is still evolving with an ascending range (depicted in purple) in place since 12 February 2016 low with the lower boundary and upper boundary at 16170/16050 and 18400 respectively (see daily chart).
• On the shorter-term, the Index has broken below the former ascending trendline support from 04 May 2016 low@8pm now turns pull-back resistance (depicted in dotted red) at 16920/17015 which also confluences closely with a minor congestion area from  11 May to 27 May 2016 and the 61.8%/76.4% Fibonacci retracement from the recent decline from 31 May 2016 high to last week low of 16260 (see 4 hour chart).
• The 4 hour (short-term) Stochastic oscillator has flashed a bullish divergence signal at its oversold region which suggests a push up/retracement of last week’s decline (see 4 hour chart).

Therefore, the Index may see a short-term push up in price action first towards the intermediate resistance at 16760 with a maximum limit set at the 16920/17015 medium-term pivotal resistance before a potential down leg materials to target the ascending range support at 16170/16050.

However, a break above the 16920/17015 medium-term pivotal resistance may invalidate the push down scenario for a further rally towards the next resistance at 17700/900 in the first step (towards ascending range top).

Hang Seng Index – 21100 remains the medium-term resistance to watch

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Key Levels (1 to 3 weeks)

Pivot (key resistance): 21100

Supports: 20100 & 19560

Next resistances:  21650 & 23500

Medium-term (1 to 3 weeks) Outlook

Maintain bearish bias. Last week, the Hong Kong 50 Index (proxy for the Hang Seng Index futures) has attempted a push up and probed the 21100 medium-term pivotal resistance but did not have a clear break above it. Technical remains the same.

As long as the 21100 medium-term pivotal resistance is not surpassed, the Index is likely to stage a potential decline to target the 20100 support and a break below it may trigger another down leg towards the next support at 19560 (swing low areas of 13/19 May 2016 that has tested the former minor swing high areas of 22/26 February 2016).

Only a break above the 21/28 April 2016 swing high area of 21650 is likely to trigger a further corrective rally towards the next resistance at 23500.

FTSE China A50 – Still below 9840/700 medium-term resistance

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Key Levels (1 to 3 weeks)

Pivot (key resistance): 9700/840

Supports: 9430 & 9180/080

Next resistances: 10310

Medium-term (1 to 3 weeks) Outlook

Maintain bearish bias within range configuration. Last week, the China A50 has staged a push up and reacted off right at the 9700/840 medium-term pivotal resistance. Please click on this link for a recap on our previous weekly technical outlook/strategy.

This week will be a short-week for the China stock market as it will be closed from Thursday, 09 May to Friday, 10 May 2016 for the Tuen Ng (Dragon Boat) Festival. Key elements as follow:

• The 9700/840 medium-term pivotal resistance now confluences with the 200-day Moving Average (depicted in orange) where price action has stalled previously on 10 August 2015 that lead to a steep fall to hit the 2015 low of 8045 (see daily chart).
• In conjunction, the daily (medium-term) RSI oscillator has staged a failure break above the descending trendline resistance and reintegrated back below it. This observation suggest a lack of upside momentum in price action (see daily chart).
• The intermediate support now rests 9430 which is defined former minor the swing high of 20 May 2016 and now a short-term ascending trendline from 18 May 2016 low @12pm.

As long as the 9700/840 medium-term pivotal resistance is not surpassed, the Index is likely to see a slide to retest the intermediate support at 9430 and a break below it may trigger a further decline to target the next support at 9180/080 (minor swing low of 18 May and 11 March 2016 low).

However, a clearance above the 9700/840 medium-term pivotal resistance is likely to damage the bearish scenario to see a further upside movement towards the next resistance at 10310 in the first step.

DAX – Mixed elements, turn neutral between 10350 and 9780

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Key Levels (1 to 3 weeks)

Resistances: 10350 & 10530/650

Supports: 9780 & 9530/430

Medium-term (1 to 3 weeks) Outlook

Last week, the German 30 Index (proxy for the DAX futures) has shaped the expected decline without an initial push up and hit our first downside target (support) at 10080 (printed a low of 10037). Please click on this link for a recap on our previous weekly technical outlook/strategy.

New technical elements as follow:

• On the medium-term, the Index is still evolving within an ascending range configuration (depicted in light blue) in place since 11 February 2016 low with the top of the range coming at 10780/880 which also confluences with the upper limit of the long-term descending channel in place since 12 April 2015 high and a Fibonacci cluster (see weekly & daily charts).
• On the shorter-term, the evolution of the price action is not so clear as the Index has appeared to be trapped within a triangle range configuration (depicted in purple)  with the upper limit now at 10350 and the lower limit coming in at 9780 (see 4 hour chart).
• The lower limit of the impending triangle range configuration at 9780 also confluences with the minor swing low congestion area from 06 May to 24 May 2016 and also close to the lower boundary of the ascending range configuration as depicted in the daily chart.
• In conjunction, the daily (medium-term) RSI oscillator remains supported by its ascending trendline (see daily chart).

Mixed elements at the moment, turn neutral between 10350 and 9780.  Only a break below 9780 is likely to trigger a deeper decline to target the next support at 9530/430.

On the flipside, a clearance above 10350 may see a further squeeze up towards the ascending range top, setting sight at the next resistance of 10530/650 in the first step.

Charts are from Advantage TraderPro & eSignal

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