the week ahead for major stock indices 14 dec to 18 dec 1790592015

Key Takeaways

• Major stock indices have continued to plunge since the less aggressive monetary policies announced by the European Central Bank (ECB) on 03 December 2015. The resurgence of risk aversion in equities is in line with a weaker crude oil as the benchmarked WTI remains depress  below US$40 per barrel and a continued rally seen in the EURUSD (the Euro being a source of funding currency due to its low yield).
• Interestingly, the China stock market (FTSE China A50) has remained resilient in the past week as it continued to trade sideways above its key medium-term support at 9800.
• After two weeks of horrendous decline, the U.S. S&P 500, German DAX and Hong Kong’s Hang Seng are now resting at their respective medium-term critical inflection support zones. Coincidently, these price movements occurred just before the most important economic event for 2015, the U.S. Federal Reserve monetary policy (FOMC) announcement on 16 December 2015 where market participants are expecting a hike in the fed funds policy interest rate for the first time since 2007.

Nikkei 225 

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Pivot (key support): 18650/18400

Resistance: 19340/19500 & 19820

Next support: 17500

Medium-term (1 to 3 weeks) Outlook

In last week volatile environment, the Japan 225 (proxy for the Nikkei 225) has broken below the 19190 weekly pivotal support and invalidated our preferred direct rise scenario.

It has staged the alternate deeper pull-back scenario and it is now resting just above the critical inflection zone of 18650/18400 which is the pull-back support area of the “Inverse Head & Shoulders” bullish breakout that occurred in 22 October 2015 which also confluences with a Fibonacci cluster.

The medium-term uptrend in place since 29 September 2015 low remains intact as long as the 18650/18400 weekly pivotal support is not broken. Technical elements are advocating for a potential push up to test the intermediate resistance at 19340/19500 and a break above 19500 may add impetus for a further upside movement to target the 19820 trendline resistance that is now linking the lower highs from 11 August 2015.

On the other hand, failure to hold above the 18650/18400 weekly pivotal support may see a further slide to test the next support at 17500 which is also defined by the long-term trendline support that is linking the higher lows from 14 October 2012. If this price action plays out, it is likely that the Index is consolidating within a potential “Symmetrical Triangle” range configuration that is in place since 11 August 2015 high.

Hang Seng Index

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Resistance: 21900 & 23455

Support: 20290/20070 & 19800/19400

Medium-term (1 to 3 weeks) Outlook

The Hong Kong 40 Index (proxy for the Hang Seng Index) is one of the worst performers among developed markets. Since the 17% rally towards the 23455 swing high area printed on 23 October 2015 from the “Black Monday”, 24 August 2015 low, the Index has failed to make any headway. It is being capped by the “stubborn” trendline resistance that is linking the lower highs since 26 May 2015 now at 21900.

Technical elements are mixed at this juncture, thus we turn neutral for now between 21900 and 20290/20070 (swing lows area of 24 August and 29 September 2015). Only a clear break above the 21900 trendline resistance may open up scope for a potential rally to retest the 23455 swing high area.

FTSE China A50

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Pivot (key support): 9800

Resistance: 10665 & 11480/11970

Next support: 8960

Medium-term (1 to 3 weeks) Outlook

Interestingly, the China A50 Index (proxy for the FTSE China A50) has managed to remain resilient as it traded sideways above the 9800 weekly pivotal support despite the volatile movement seen last week in other stock indices.

Bullish technical view remains unchanged and a break above the 10665 intermediate resistance is likely to trigger a further potential upside movement to target the 11480/11970 resistance zone. On the flipside, failure to hold above the 9800 weekly pivotal support may damage the medium-term uptrend in place since the “Black Monday”, 24 August 2015 low to see a decline towards the next support at 8960.

DAX

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Intermediate support: 10180/140

Pivot (key support): 9750

Resistance: 10970 & 11160/11240

Next support: 9360

Medium-term (1 to 3 weeks) Outlook

The German 30 Index (proxy for the DAX) has continued the plunge since the less aggressive monetary policies announced by the European Central (ECB) on 03 December 2015.

It has challenged and inched lower below the 10380 pull-back support of the “Double Bottom” bullish breakout on an intraday basis today (14 December 2015). However, right below this 10380 support are two other critical supports that are defined by Fibonacci retracements (61.8% & 76.6% of the up move from 29 September 2015 low to 30 November 2015 high) and a long-term trendline support that is linking the lower lows since 11 September 2011 (see daily chart for reference).

The daily (medium-term) RSI oscillator is inching lower but it is now coming close to its oversold region which suggests that the downside momentum of the current decline is “overstretched” and a potential rebound in price action is round the corner.

The Index is likely to see a further potential push down towards the 10180/10140 intermediate support (objective met) with a maximum limit set at the 9750 weekly pivotal support before a potential rebound occurs towards the 10970 resistance and even the 11160/11240 area (former trendline support from 29 September 2015 low now turns pull-back resistance.

However, failure to hold above the 9750 pivotal support may see the start of a severe correction to test the 9360 swing low area of 24 August and 29 September 2015 in the first step.

S&P 500

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Pivot (key support): 1994

Resistance: 2069 & 2107

Next support: 1940

Medium-term (1 to 3 weeks) Outlook

The U.S. SP 500 Index (proxy for the S&P 500) has continued to plunge from the 02 December 2015 swing high and recorded a loss of 4.7% to print a low of 2008 seen on last Friday, 11 December 2015.

Interestingly, current price action is now resting at a critical support of 1994 which is defined by the pull-backed support of the “Double Bottom” bullish breakout and a Fibonacci cluster.

Other technical elements such as the daily (medium-term) Stochastic oscillator (has reached extreme oversold condition) is supporting a potential rebound for the Index.  As long as the 1994 weekly pivotal support holds, the Index is likely to see a potential recovery to test the intermediate resistance at 2069 (former ascending channel support now turns pull-back resistance). Only a break above 2069 may trigger a further upside movement to target the 2107 trendline resistance in place since the 19 May 2015 all-time high.

However, failure to hold above the 1994 weekly pivotal support may see a further slide to test the next support at 1940. If this price action plays out, it is likely that the Index is consolidating within a potential “Symmetrical Triangle” range configuration that is in place since 19 May 2015 high.

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