the week ahead for major stock indices 08 feb to 12 feb 2016 1796402016

 Key Takeaways

• The final phase of the mean reversion/ “snap-back rally” from 20/21 January 2016 lows have been invalidated as DAX, Nikkei 225 and Hang Seng have broken below their respective medium-term pivotal supports (click here to recap our previous weekly outlook/strategy).
• The U.S. S&P 500 has managed to hold its 1873 medium-term pivotal support but the internal structure of the market is not supporting any potential recovery scenario at this juncture. The Consumer Discretionary, Financials and Heath Care sectors have broken below their supports and show further weakness ahead.
• Lunar New Year holidays – Hong Kong stock market will be close for from 08 February (Mon) to 10 February 2016 (Wed). The Shanghai Stock Exchange will be close for the whole of next week.

 Nikkei 225 – Further potential downside below 17210/17530

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Intermediate resistance: 17210

Pivot (key resistance): 17530

Supports: 16000/15800 & 15260/15020

Next resistance: 18350/18530

Medium-term (1 to 3 weeks) Outlook

Last week, the Japan 225 (proxy for the Nikkei 225 futures) has invalidated the final phase of the mean reversion/ “snap-back” rally that started from 21 January 2016 low through the bearish break of the 17230 medium-term pivotal support.

Latest technical elements are advocating for more potential impulsive downside movement (based on the Elliot Wave Principal, it is likely shaping the bearish wave 5/ of (3)). On the shorter-term due to an oversold condition seen in the 4 hour Stochastic oscillator, the Index may see a “relief rebound” above the 16290/200 level towards the intermediate resistance at 17210. As long as the 17530 medium-term pivotal resistance is not surpassed, the Index is likely to see another down leg to target the 16000/15800 support before 15260/15020.

However, a break above the 17530 pivotal resistance may negate the bearish tone to see a further push up towards the next resistance at 18350/18530 (the congestion area of 09 September to 14 December 2015)

Hang Seng Index –Further downside pressure below 19800/960

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Intermediate resistance: 19410

Pivot (key resistance): 19800/960

Supports: 18200

Next resistances: 20380 & 21000

Medium-term (1 to 3 weeks) Outlook

Do take note that the Hong Kong stock market will be close for the Lunar New Year holidays from 08 February (Mon) to 10 February 2016 (Wed).

Last week, the Hong Kong 50 Index (proxy for the Hang Seng Index futures) has invalidated the final push of the mean reversion/ “snap-back” rally through the bearish break of the 19000 medium-term pivotal support.

Current technical elements are suggested further potential downside pressure for the Index. As long as the 19800/960 medium-term pivotal resistance is not surpassed, the Index is likely to see another round of potential downside movement to target the next support at 18200.

On the other hand, a clearance above the 19800/960 pivotal resistance may put the bears on hold to see a “relief rebound” towards the next resistance at 20380.

DAX – Broke below 9300, further downside pressure ahead

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Intermediate resistance: 9470

Pivot (key resistance): 9670

Supports: 9040 & 8580/8350

Next resistances: 9930 & 10165/10280

Medium-term (1 to 3 weeks) Outlook

The final phase of the mean reversion/ “snap-back” rally for the German 30 Index (proxy for the DAX futures) has been invalidated as per warned last week through the break of the 9600 medium-term pivotal support.

Last Friday, it has a weekly close of 9258 which is below the 9300 critical range support (the swing low areas of “Black Monday, 24 August 2015, 29 September 2015 and 20 January 2016). Technical elements are now advocating for further potential bearish movement.

On the shorter-term the Index may see a rebound towards the 9470 intermediate resistance and as long as 9670 medium-term pivotal resistance is not surpassed, the Index is likely to see another potential down leg to target the 8580/8350 support (Fibonacci projection cluster & lower boundary of the descending channel).

A break above the 9670 pivotal resistance is likely to negate the bearish tone to see a push up to retest the short-term range top and the upper boundary of the descending channel at 9930. Only a clearance above the 9930 resistance is likely to revive the mean reversion rally scenario for a further squeeze up to target the next resistance at 10165/10280 in the first step.

S&P 500 – Toppish configuration below 1928

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Intermediate resistance: 1896/1902

Pivot (key resistance): 1928                  

Supports: 1873 & 1820/11

Next resistances: 1947/54 & 1994

Medium-term (1 to 3 weeks) Outlook

Even though the U.S. SP 500 Index (proxy for the S&P 500 futures) has managed to test and hold above the 1873 medium-term support but intermarket analysis does support the final phase of the mean reversion/ “snap-back” reversion rally. The DAX, Nikkei 225 and Hang Seng have all broken below their respective medium-term supports. In addition, the internal structure of the U.S. stock market has deteriorated as three sectors ETFs (exchange traded funds); the Consumer Discretionary, Financials and Health Care have broken below their respective supports and show further downside pressure ahead (refer to the sectors charts).

As seen on the 4 hour chart, the U.S. SP 500 Index has traced out an impending bearish “Inverse Head & Shoulders” chart configuration (shaded by the pink boxes) with its neckline support at 1873.

All these observations suggest bearish implications for the Index. Given that the 4 hour Stochastic oscillator is coming close to its extreme oversold level, the Index has may see a short-term rebound above the 1873 neckline support towards the intermediate resistance zone of 1896/1902 before another potential down leg occurs to target the critical range support of 1820/11 (exit target of the “Inverse Head & Shoulders” & the neckline support of the “Double Top” as seen on the weekly chart).

On the other hand, a break above the 1928 medium-term pivotal resistance is likely to negate the bearish tone to see a push up to retest the short-term range top at 1947/54. Only a clearance above 1954 may revive the mean reversion rally to target the next resistance at 1994 in the first step.

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this email, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs. All queries regarding the contents of this material are to be directed to City Index, a trading name of GAIN Capital Singapore Pte Ltd.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.