the week ahead for major stock indices 15 aug to 19 aug still positive with bullish breakout seen in

We have explained earlier in our longer-term global markets strategic outlook for Q3 20016 that this anticipated rally in global equities is driven by liquidity factors rather than improving fundamentals. Firstly, the probability of the next U.S. Fed policy interest rate hike before 2016 has been reduced which lead the key benchmark indices such as the S&P 500 to soar to a new record high. Secondly over in Europe, the ECB and BOE have pledged to do “whatever it takes” to negate the negative spill over effects from Brexit via quantitative easing programmes which lead the German DAX to break above a key resistance last week.

Thirdly over in Asia, one of the major benchmark indices that outperformed the rest of Asian region is the Hong Kong Hang Seng Index as it has soared by 16% from its 24 June 2016 low (Brexit) due to its fixed currency peg with the U.S. dollar which means that the fate of Hong Kong’s monetary policy will be tied with what the Fed does with its policy benchmark Fed funds rate. A reluctant Fed to hike its policy interest rate will be translated into an indirect form of monetary easing for Hong Kong which increases the flow of liquidity. Lastly, the laggard China A50 has finally staged a bullish breakout on last Friday, 12 August from its former range top that is in place since March 2016 on a market talk that an imminent formal announcement of the Shenzhen-Hong Kong Stock Connect programme will be announced this week. The Shenzhen-Hong Kong shares trading link is definitely a “comforter” for China stock market as its needs the liquidity to drive it given the recent lacklustre key economic data from industrial production and retail sales. Let us take a look at the major stock indices from a technical analysis perspective.

S&P 500 – Further potential upside to print a new record high

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Key Levels (1 to 3 weeks)

Intermediate support: 2179

Pivot (key support): 2155/47

Resistances: 2194/2222 & 2258/68

Next support:  2110

Medium-term (1 to 3 weeks) Outlook

Maintain bullish stance. Last week, the U.S. SP 500 Index (proxy for the S&P 500 futures) has continued to inch upwards as expected and printed a new all-time high at 2188 with a higher weekly close figure of 2184 despite a weaker than expected retail sales number for July.  Please click on this link for a recap on our previous weekly technical outlook/strategy. Current key elements as follow:

• Momentum remains positive with the daily (medium-term) RSI oscillator that has continued to hover above its support and 50% level. In addition, it still has room to manoeuvre to the upside before reaching an extreme overbought level.
• Based on the Elliot Wave Principal and fractal analysis, the Index is likely to be undergoing the potential bullish final 5^th wave of an intermediate degree to complete a higher primary degree bullish impulsive wave (3) in place since 28 June 2016 low. 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).
• The medium-term pivotal support remains at 2155/47 which is defined by the minor swing low area of 03 August 2016 and close to the 23.6% Fibonacci retracement of the on-going up move from 28 June 2016 low to last week high of 2188.
• The Index has staged a bullish breakout above the intermediate resistance at 2183 which is now a pull-back support at 2183/79 (see 4 hour chart).

Therefore, we are maintaining our bullish stance and as long as the 2155/47 medium-term pivotal support holds, the Index is likely to shape another upleg to propel it to new potential record highs with resistances at 2194/2222 before 2258/68.

However, failure to hold above the 2155/47 pivotal support (daily close below) is likely to invalidate the preferred medium-term (multi-week) bullish scenario for a deeper decline towards the significant pull-back support of 2110 (former long-term range top that has capped previous advances since May 2015).

Nikkei 225 – Maintain bullish stance with a tightened medium-term pivotal support

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Key Levels (1 to 3 weeks)

Intermediate support: 16780

Pivot (key support): 16600

Resistances: 17200/240, 17500 & 17700/900

Next supports: 15900/825

Medium-term (1 to 3 weeks) Outlook

Maintain bullish bias with a tightened medium-term pivotal support. The Japan 225 (proxy for the Nikkei 225 futures) has continued to surge as expected after the “bear trap” seen on 02/04 August 2016 and it has rallied by 6.4% from 04 August 2016 low to last week high of 16944.

The intermediate resistance at 16780 has already been surpassed and current price action is now heading towards the first medium-term target of 17200/240. Please click on this link for a recap on our previous weekly technical outlook/strategy. Current key elements as follow:

• Momentum remains positive with the weekly (long-term) RSI oscillator that has just inched above the 50% level after a prior bullish breakout from its former desending trendline resistance. In addition, the daily (medium-term) RSI oscillator has not flash any bearish divergence signal and still has some room left to manoeuvre to the upside before reaching an extreme overbought level.
• Based on the Elliot Wave Principal and fractal analysis, the Index has continued to evolve within an intermediate degree bullish impulsive wave structure/cycle in place since 24 June 2016 low (Brexit).  Current price structure since 04 August 2016 low (“Bear trap”) is likely to be depicting a potential final 5^th wave, the wave 5/ of the intermediate degree bullish impulsive wave structure/cycle in place since 24 June 2016 low with potential projected end targets set at 17200/240, 17530 and 17700/900 . On a side note after the wave 5/ ends, the Index is likely to see a completion of a higher primary degree bullish impulsive wave (1) that has been developed from the current wave structure of 1/, 2/, 3/, 4/, & 5/. This potential outcome suggests that a steeper primary degree corrective wave (2) is likely to occur after the end of wave 5/ of (1) where the expected decline of the corrective wave (2) in terms of magnitude and duration is likely to be deeper than the prior declines that have occurred so far since 24 June 2016 low.
• The upper limit of the aforementioned potential projected end target of 17700/900 also confluences with a key graphical resistance zone (the significant descending trendline resistance that has capped all prior advances since 21 June 2015 high  & the major swing high area of 31 January 2016).
• The key medium-term support now rests at 16600 which is defined by the lower boundary of a short-term bullish ascending channel in place since 04 August 2016 low and the 23.6% Fibonacci retracement of the on-going up move from 04 August 2016 low to last week high of 16944.

Therefore, we are maintaining our bullish stance with a new weekly medium-term pivotal support at 16600 for a further potential push up to target 17200/240 follow by 17500 with a maximum limit set at the 17700/900 key resistance zone.

However, failure to hold above the 16600 medium-term pivotal support is likely to invalidate the preferred bullish bias to open up scope for a corrective decline towards the next support at 15900/825 (former minor swing high areas of 30 June/04 July 2016, ascending trendline in place since 24 June 2016 low & the 50% Fibonacci retracement of the whole up move from 24 June 2016 low to last week high of 16944).

Hang Seng Index – Further potential upside but risk of a minor pull-back first at 23200/500

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Key Levels (1 to 3 weeks)

Intermediate support: 22560

Pivot (key support): 22190

Resistances: 23200/23500 & 24500

Next support: 21380

Medium-term (1 to 3 weeks) Outlook

Maintain bullish bias but risk of a minor pull-back at the 23200/500 zone. Last week, the Hong Kong 50 Index (proxy for Hang Seng Index futures) has managed to surge upwards from our predefined medium-term support at 22110 and broke above the intermediate resistance of 22810/900.

Based on its price action as of Monday, 15 August, it has printed a current intraday high of 22982 which is just 0.95% away from the lower limit of our medium-term target/resistance zone of 23200/500 as per highlighted in our previous weekly outlook/strategy Please click on this link for a recap on our previous weekly technical outlook/strategy. Current key elements as follow:

• Even though the current price action of the Index is coming close to our medium-term resistance zone of 23200/500, there are no clear signs of major bearish exhaustion. The weekly (long-term) RSI remains bullish above its former resistance turns pull-back support and the 50% level. In addition, it still has room for further upside before reaching an extreme overbought level. The other hand, the daily (medium-term) RSI oscillator is now coming close to its extreme overbought level but without any bearish divergence signal. Therefore current readings from these momentum indicators suggest that upside momentum remains intact on the longer-term but on the medium-term (multi-week), the current up move from 24 June 2016 low has appeared to be “overstretched” where it may see a minor retracement at the 23200/500 resistance zone.
• The next significant resistance stand at 24500 which are defined by a confluence of elements. The major swing high areas of 16 January/03 April 2011, the pull-back resistance (depicted in pink on the weekly chart) in place since the major swing low area of 02 October 2011 and a Fibonacci cluster.
• The medium-term pivotal support now stands at 22190 which is defined by the lower boundary of a medium-term bullish ascending channel in place since 24 June 2016 low, the minor swing high areas of 26 July/01 August 2016 and the 23.6% Fibonacci retracement of the on-going up move from 24 June 2016 low to today’s current intraday high of 22982.

In conclusion, the medium-term uptrend in place since the 24 June 2016 low (Brexit) remains intact. However, the Index may see a minor pull-back/consolidation first at the 23200/500 resistance zone towards the 22560 intermediate support with a maximum limit set at the new weekly medium-term pivotal support of 22190. Thereafter, another potential upleg is likely to materialise to target the more significant resistance of 24500.

On the other hand, a break below the 22190 medium-term pivotal support may invalidate the medium-term uptrend for a deeper pull-back towards the next support at 21380 (pull-back area of the former “Triangle range” bullish breakout).

FTSE China A50 – Bullish breakout from 5 months of range configuration 

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Key Levels (1 to 3 weeks)

Intermediate support: 9850

Pivot (key support): 9700

Resistances: 10135 & 10500

Next support: 9330

Medium-term (1 to 3 weeks) Outlook

Bullish breakout from range top in place since March 2016.  Last week, the China A50 has rallied as expected and hit our target/resistance at 9700/9840 (the range top).  On last Friday, 12 August it has attempted to breach above the range top of 9700/9840 on a possibility that a formal announcement of the much awaited Shenzhen-Hong Kong trading link will be announced soon despite weaker than expected key China economic data such as industrial production and retail sales.

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

• The Index has staged a bullish breakout from the risk zone of 9840/700  which is defined by the 200-day Moving Average and the range top in place since March 2016.
• Despite the negative news flow on CNY devaluation and lacklustre economic data, the decline in the China A50 Index has been supported by an ascending trendline in place since the major swing low of 24 August 2015 which has created a series of “higher lows”. From a technical analysis perspective, this is a positive observation.
• The next medium-term resistance to watch will be at 10500 (Fibonacci cluster) follow by the key significant resistance of 11100, the major swing high areas of 09 November/23 December 2015 that the Index has failed to break above after a 37% rebound seen from the 24 August 2015 low (triggered by the sudden 2% devaluation of the CNY against the USD).
• The 4 hour (short-term) Stochastic oscillator has reached an extreme overbought which highlights the risk of a minor pull-back/consolidation below the 10135 intermediate resistance level.
• The medium-term pivotal support will be at 9700 which is defined by the pull-back support of the former range top bullish break and the 50% Fibonacci retracement of the current rally seen from the minor swing low of 04 August 2016 to today (15 August) current intraday high of 10134

Therefore, the Index may see a minor pull-back first towards the 9850 intermediate support with a maximum limit set at the new medium-term pivotal support of 9700 before another potential upleg materialises to target the next resistance at 10500 in the first step.

On the other hand, failure to hold above the 9700 medium-term pivotal support is likely to see a failed bullish breakout from the range top to see another round of choppy decline towards the next support at 9330.

DAX – Target/resistance almost reached at 10870/990, turn neutral

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Key Levels (1 to 3 weeks)

Resistances: 11050 & 11430

Supports: 10380, 10090 & 9800

Medium-term (1 to 3 weeks) Outlook

Turn neutral due to mixed elements. Last week, the German 30 Index (proxy for the DAX futures) has shaped the expected bullish breakout from its significant descending range top at 10380.

It rallied throughout the week and current price action (Monday, 15 August) has printed an intraday high of 10806 which is closed to our predefined medium-term target/resistance zone of 10870/990.

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

• Based on the Elliot Wave Principal and fractal analysis, last week rally is likely the intermediate degree final bullish 5^th wave of the higher primary degree bullish impulsive wave structure (1) in place since 27 June 2016 low. The potential end target of the primary degree impulsive wave (1) stands at 10870/990 with an extension of 11050. These observations suggest that the current rally is coming close to a potential inflection zone where a deeper decline may occur at 10870/11050 to kick start the primary degree corrective wave (2).
• The upper boundary of  a medium-term bullish ascending channel in place since 06 July 2016 low stands at 11050 which also confluences with the aforementioned potential extended end target of the primary degree impulsive wave (1) (see 4 hour chart).
• Momentum remains positive even though the daily (medium-term) RSI oscillator continues to hover around its overbought region. It has not flash any bearish divergence signal and still has some room left to manoeuvre to the upside before reaching an extreme overbought level.
• The medium-term key support now rests at 1380 which is defined by the pull-back support of the former significant descending range top bullish breakout, the lower boundary of the short-term ascending channel and close to the 23.6% Fibonacci retracement of the on-going rally from 27 June 2016 low to the current intraday high of 10806.

Therefore, technical elements have started to turn mixed on the DAX. Thus on a medium-term (multi-week) perspective, we have decided to turn neutral between 11050 and 10380.

Only a break above the 11050 resistance is likely to open up scope for a further potential direct rise to target the next resistance at 11430. On the flipside, failure to hold above the 10380 support may see a deeper decline towards the next support at 10090.

Charts are from City Index Advantage TraderPro

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