the week ahead for major stock indices 08 aug to 12 aug bullish tone remains intact with dax breakin

S&P 500 – Impending potential bullish range breakout

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Key Levels (1 to 3 weeks)

Intermediate support: 2169/65

Pivot (key support): 2155/47 (excess)

Resistances: 2194/2222 & 2258/68

Next support:  2110

Medium-term (1 to 3 weeks) Outlook

Maintain bullish bias for further potential upside. Last week, the U.S. SP 500 Index (proxy for the S&P 500 futures) had breached below (printed a low of 2147on an intraday basis) the lower boundary of the short-term ascending range in place since 14 July 2016 high and our predefined medium-term pivotal support at 2155 on Tuesday, 02 August.

Interestingly, it did not have a daily close below the 2155 medium-term pivotal support and even managed reintegrated back above the ascending range’s lower boundary, thus created a “bear trap”. Our preferred bullish scenario remained intact and last Friday, 05 August it had shaped the expected rally (click here to recap our detailed analysis on the short-term technical strategy that incorporated expectations on impending economic data releases)and closed near the upper boundary of the short-term ascending range. Please click on this link for a recap on our previous weekly technical outlook/strategy. Current key elements as follow:

• Long and medium-term momentum indicators are still showing positive readings. The weekly RSI oscillator has continued to inch upwards from the former “stubborn” descending resistance and still has room to manoeuvre to the upside before reaching an extreme overbought level. In addition, the daily RSI oscillator has tested and staged a rebound from its former descending resistance turns pull-back support and the 50% level. These observations suggest that upside momentum remains intact.
• Based on the Elliot Wave Principal and fractal analysis, last week’s decline in price action seen on Tuesday, 02 August low of 2147 is likely to be considered the end of a corrective wave 4/ of an intermediate degree and the rally seen on last Friday, 05 August is the start of a potential bullish impulsive wave 5/ of an intermediate degree to complete a higher primary degree five wave bullish impulsive structure/cycle of (3)  that started from 28 June 2016 low (post Brexit). The potential end target of the primary degree impulsive wave (3) stands at 2258/68.
• The aforementioned target of 2258/68 also confluences with the upper boundary of a medium-term bullish ascending channel in place since 11 February 2016 low (see daily chart).
• Even though, last Friday’s price action has closed near the upper boundary of the ascending range top at 2183 but probability is now skewed to towards a bullish breakout rather than a bearish reversal based on intermarket relation and market breadth analyses (details below).
• Intermarket relation – The Nasdaq 100 is the only benchmark index that has not break above its previous decade all-time high seen during the March 2000 dot.com bubble. Last Friday, it has approached the all-time high level of 4816 with a gapped up (printed a high of 4799). There are no clear bearish exhaustion signals as current price action approaches 4816 which implies a potential bullish breakout that will likely support the on-going positive movement seen in the S&P 500 to scale new all-time highs (refer to the 4^th chart).
• Market breadth – Remains positive as percentage of stocks that hit new 52-week highs (smoothed by a 20-period moving average) seen on the broader based NYSE Composite index has continued to increase steadily above its 5-year average as per recorded end of last week. In addition, it is still below the +1 standard deviation level of 8.62 (refer to the 5^th chart).
• The medium-term pivotal support remains at 2155 with an excess set at last week low of 2147.

Therefore, we are maintaining our bullish stance for a potential breakout above 2183 to see a further upside movement on the Index to scale new potential highs with resistances at 2194/2222 before 2258/68.

On the other hand, failure to hold above the 2169/65 intermediate support is likely to negate the bullish tone to see a retest on the medium-term pivotal support of 2155/47. Only a clear break below the 2155/47 pivotal support (daily close) is likely to invalidate the preferred medium-term (multi-week) bullish scenario for a deeper decline to target the significant pull-back support of 2110 (former long-term range top that has capped previous advances since May 2015).

Nikkei 225 – “Bear trap” seen around 16200 support; further potential upside movement

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Key Levels (1 to 3 weeks)

Intermediate support: 16480

Pivot (key support): 16200

Resistances: 16780, 17240 & 17700/900

Next supports: 15825 & 15100

Medium-term (1 to 3 weeks) Outlook

Maintain bullish bias. Last week, the Japan 225 (proxy for the Nikkei 225 futures) has challenged the 16200 medium-term pivotal support but we are not convinced to validate a bearish movement on the Index (click here, here & here to recap our daily short-term technical outlooks/strategies as we explained our rationale based on the evolvement of the short-term price action).

The Index has indeed shaped a “bear trap” as it traded back above 16200 and broke the upper boundary of the descending range top in place since 22 April 2016 high during last Friday, 05 August U.S. session. Current key elements as follow:

• Long and medium-term momentum indicators are still showing positive readings. The weekly RSI oscillator has staged a bullish breakout from its former descending resistance and remains above it. In addition, the daily RSI oscillator has tested and staged a rebound from its former descending resistance turns pull-back support. This occurrence also happened close to the 50% level and the daily RSI still has room to manoeuvre to the upside before reaching an extreme overbought level. These observations suggest that upside momentum remains intact.
• Last week’s challenge on the 16200 medium-term pivotal support is considered as a whipsaw as price action has created a “bear trap” below the pull-back support (depicted in dotted pink) of the former descending range’s upper boundary and interestingly, it has also formed a daily bullish “Hammer” candlestick pattern on Thursday, 04 August (see daily & 4 hour charts).
• Intermediate-term support now rests at 16480 which is the pull-back support of the former short-term descending trendline in place since 21 July 2016 high (Pre BOJ) (see 4 hour chart)
• The shorter-term 4 hour Stochastic oscillator is now coming close to an extreme overbought level where the Index may see a minor pull-back around the intermediate resistance of 16780.
• Based on the Elliot Wave Principal and fractal analysis, last week’s decline in price action seen on Thursday, 04 August low of 15915 is likely to be considered the end of a corrective wave 4/ of an intermediate degree and the rally seen on last Friday, 05 August is the start of a potential bullish impulsive wave 5/ of an intermediate degree to complete a higher primary degree five wave bullish impulsive structure/cycle of (1) that started from 24 June 2016 low (Brexit). The potential end target of the primary degree impulsive wave (1) stands at 17240 with an upper limit at 17700/900.
• The aforementioned upper limit target of 17700/900 also confluences with the siginificant descending trendline resistance that has capped all prior advances since 21 June 2015 high (see weekly chart).

Therefore, we are keeping our bullish stance. However, there is a risk of a minor pull-back first around the 16780 intermediate resistance towards the intermediate support of 16480 with a maximum limit set at the 16200 medium-term pivotal support. Thereafter another potential upleg is likely to materialise to target the next resistance at 17240 and even 17700/900.

Hang Seng Index – Bullish bias but risk of a minor pull-back

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Key Levels (1 to 3 weeks)

Intermediate support: 22110

Pivot (key support): 21700

Resistances: 22810/900 & 23200/23500

Next supports: 21380 & 19640/560

Medium-term (1 to 3 weeks) Outlook

Maintain bullish bias. Last week, the Hong Kong 50 Index (proxy for Hang Seng Index futures) has staged a gapped down on Wednesday, 03 August 2016 in line with major global stock indices to print a low of 21691 which is right on our predefined medium-term pivotal support of 21700/600.  Please click on this link for a recap on our previous weekly technical outlook/strategy.

Thereafter, it has staged the expected recovery right at the 21700/600 support and continued to inch upwards towards the expected medium-term target/resistance at 23200/23500.  Current elements as follow:

• Since the low of 24 June 2016 (Brexit), the Index has started to evolve within a medium-term bullish ascending channel (depicted in blue) with its lower boundary (support) now at 22110 (see 4 hour chart).
• The upper boundary (resistance) of the aforementioned ascending channel now stands at 22810/900 (see 4 hour chart).
• The daily (medium-term) RSI oscillator continues to inch upwards from support/50% level but has not reached its extreme overbought level and it does not flash any clear bearish divergence signal at the moment. These observations suggest that upside momentum of price action remains intact.
• The significant medium-term resistance remains at the 23200/500 zone which are defined by a confluence of elements (Fibonacci retracement/projection cluster, the minor swing high areas of 21/28 April 2016 & the potential exit target of the “Triangle range” bullish breakout).
• The shorter-term (4 hour) Stochastic oscillator is now coming close to an extreme overbought level highlights the risk of an impending minor pull-back in price action at the intermediate resistance of 22810/900 (upper boundary of the ascending channel).
• The medium-term pivotal support is tightened to 21700.

Therefore, the Index may see a minor pull-back first at the 22810/900 intermediate resistance towards the intermediate support of 22110 with a maximum limit set at the 21700 medium-term pivotal support before another potential upleg materialises to target the significant medium-tem resistance zone of 23200/500.

However, failure to hold above the 21700 medium-term pivotal support is likely to negate the preferred bullish tone to see a deeper pull-back to retest 21380 (support of the former symmetrical range bullish breakout). Only a break below 21380 may invalidate the on-going medium-term bullish trend in place in place since 24 June 2016 low to see a choppy decline movement back towards the 19640/560 range bottom/support.

FTSE China A50 – Potential push up to test multi-month range top

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Key Levels (1 to 3 weeks)

Pivot (key support): 9360

Resistances: 9700 & 9840

Next support: 9056

Medium-term (1 to 3 weeks) Outlook

Last week, the China A50 has challenged the lower limit of the neutrality zone at 9390 on Thursday, 04 August before it staged a rebound at the end of the week and close higher at 9437.

Momentum indicators are now showing positive signs; the daily (medium-term) RSI oscillator has just surpassed above the 50% level and still has room to manoeuvre to the upside before reaching an extreme overbought level. Similar observation can been in the shorter-term 4 hour Stochastic oscillator as well.

Therefore, as long as the 9360 medium-term pivotal support holds, the Index is likely to see a further push up towards the lower limit of the key range top at 9700 and a break above it open up scope for a test on the upper limit at 9840.

However, failure to hold above the 9360 medium-term pivotal support may invalidated the preferred push up scenario for a deeper decline to test the range support at 9056.

DAX – Breaking out of significant range top, further potential upside ahead

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Key Levels (1 to 3 weeks)

Intermediate support: 10350

Pivot (key support): 10160

Resistances: 10530/650 & 10870/990

Next support: 9800

Medium-term (1 to 3 weeks) Outlook

Last week, the German 30 Index (proxy for the DAX futures) has shaped the initial expected pull-back (printed a low of 10092 on Wednesday, 03 August) which is right above our predefined medium-term pivotal support of 10060. Thereafter, it has recovered and it is now coming close the expected first target/resistance of 10530/650.

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

• Current price action is now breaking above 10380 which is the upper boundary of the significant descending range that has capped prior advances since 12 April 2015 high. A weekly close above 10380 is likely to reinforce our “melt-up” scenario as per highlighted earlier in our Q3 2016 Global Markets Outlook.
• The pull-back support of the current intraday bullish breakout of the significant descending range now stands at 10350.
• The medium-term pivotal support is now tightened to 10160 which is defined by the pull-back support of the former short-term ascending range bullish breakout (depicted in dotted green), pull-back support of the former “Expanding Wedge” bullish breakout (depicted in dotted purple) and the 23.6% Fibonacci retracement of the on-going rally from 27 June 2016 low (post Brexit) to 01 August 2016 high of 10474.
• Based on the Elliot Wave Principal and fractal analysis, last week’s decline in price action seen on Wednesday, 03 August low of 10092 is likely to be considered the end of a corrective wave 4/ of an intermediate degree and the rally seen on last Friday, 05 August is the start of a potential bullish impulsive wave 5/ of an intermediate degree to complete a higher primary degree five wave bullish impulsive structure/cycle of (1) that started from 27 June 2016 low (post Brexit). The potential end target of the primary degree impulsive wave (1) stands at 10870/990.
• The 4 hour (short-term) Stochastic oscillator is now coming close to an extreme overbought level which highlights the risk of an impending minor pull-back around the 10530/650 intermediate resistance.

Therefore, the Index may see a minor pull-back first at the 10530/650 intermediate resistance towards the intermediate support of 10350 with a maximum limit set at the 10160 medium-term pivotal support before another potential upleg materialises to target the next resistance zone of 10870/990.

On the other hand, failure to hold above the 10160 medium-term pivotal support is likely to negate the preferred bullish tone to see a deeper pull-back to retest the 9800 support.

Charts are from City Index Advantage TraderPro, eSignal & Indexindicators.com

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