the week ahead for major stock indices 17 oct to 21 oct mixed bag as revival in usd strength trigger

S&P 500 – 2110/100 is the key support to watch

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Key Levels (1 to 3 weeks)

Pivot (key support): 2110/100

Resistances: 2150 (upside trigger) & 2194

Next support: 1990

Medium-term (1 to 3 weeks) Outlook

The U.S. SP 500 Index (proxy for the S&P 500 futures) has breached below the previous medium-term pivotal support of 2135 and invalidated the preferred bullish bias to retest its current all-time high at 2194 for now. Key elements are as follow:

• Downside momentum of price action remains intact as the daily RSI continues to inch downwards from its descending resistance and still has some room left to manoeuvre to the downside before reaching oversold region. Similar observations also can be seen in the shorter-term 4 hour Stochastic oscillator.
• The next support rests at the significant pull-back zone of the former multi-month range bullish breakout at 2110/100 which also confluences with a Fibonacci cluster (see daily chart).
• Based on the Elliot Wave Principal and fractal analysis, the on-going down move from 22 September 2016 high of 2180 can be the minor degree wave c/ to complete the intermediate degree corrective down wave (4) in place since 15 August 2016 all-time high of 2194 before a potential bullish impulsive intermediate degree wave (5) kick starts. The potential end target of the corrective down wave c/ of (4) also confluences closely at the 21100/100 pull-back support zone (see 4 hour chart).
• Our basket of U.S. high-beta stocks has continued to outperform its defensives counterparts since 09 September 2016 which indicates that a major “risk-off” scenario is not likely occur at this juncture.
• The uptrend of the Index in place since the 11 February 2016 medium-term swing low (capitulation triggered by the sudden second CNY weaker fixing) is being supported by “loose” liquidity conditions rather than earnings growth. As seen from the technical chart of the benchmark U.S. treasury 10 year note yield, the recent up tick (due to an increasing probability of a Fed rate hike to occur in the 14 December FOMC meeting) is still below its key long-term pivotal resistance zone of 1.80/1.98 which suggests that equities may see another upleg.     

Therefore, the Index is likely to see a further slide to test the significant pull-back support zone of 2110/100 before a potential upswing move occurs towards the 2150 intermediate resistance. A upside break above the 2150 level is required to revive the bulls for a further potential up move to retest the current all-time high at 2194.

However, a break below 2110/100 is likely to unleash another round deep decline to test the key long-term support of 1990 (the lower boundary of the ascending channel in place since start of the primary bullish cycle on March 2009-see weekly chart).

Nikkei 225 – Potential push up above 16340 support within sideways range configuration

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Key Levels (1 to 3 weeks)

Intermediate support: 16600/500

Pivot (key support): 16340

Resistances: 17165 & 17500/700

Next support: 15830

Medium-term (1 to 3 weeks) Outlook

The Japan 225 Index (proxy for the Nikkei 225 futures) has continued to evolve in a minor sideways range of 4% since 22 September 2016 high above the medium-term pivotal support of 16340. In addition, it is still being supported by a medium-term ascending trendline in place since 24 June 2016 low (Brexit) now at 16600/500.

Technical elements remain positive on the USD/JPY even though the medium-term target/resistance been met at 104.30 (click here to recap our previous weekly outlook). For this coming week as long as the 102.80 medium-term pivotal support holds, the USD/JPY is likely to shape another potential upleg towards the next resistance at 105.30.

Therefore based on intermarket cross asset analysis, the on-going positive elements seen on the USD/JPY are still supporting a further potential up move on the Nikkei 225. As long as the 16340 medium-term pivotal support holds, the Index is likely to see a push up to retest the 17165 intermediate range top in place since 31 May 2016.  Only a break above 17165 may open up scope for a further rally to target the key long-term resistance zone at 17500/700 (neckline of the bullish “basing” formation, descending trendline in place since 21 June 2016 high and a Fibonacci cluster).

On the other hand, failure to hold above the 16340 medium-term pivotal support is likely to invalidate the preferred push up scenario for a deeper decline towards the next support at 15830 (former medium-term swing high areas of 30 June/04 July 2016 & close to the 61.8% Fibonacci retracement of the up move from 24 June 2016 low to 02 September 2016 high).

Hang Seng Index – 23550 resistance needs to be surpassed to revive potential bulls

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Key Levels (1 to 3 weeks)

Pivot (key support): 23000

Resistances: 23550 (upside trigger), 24500 & 25400

Next support: 21650/380

Medium-term (1 to 3 weeks) Outlook

The Hong Kong 50 Index (proxy for Hang Seng Index futures) had a failure bullish breakout after it breached and reintegrated below former medium-term descending trendline from the 09 September 2016 swing high now turns intermediate resistance at 23550.

Despite the aforementioned failure bullish breakout, the Index is still holding above the 23000 medium-term pivotal support but momentum is being jeopardised as the daily RSI oscillator is now testing its respective supports as per highlighted in the daily chart.

Therefore, our preferred medium-term bullish bias is being tapered at moment and the Index needs to surpass the intermediate resistance at 23550 (upside trigger) in order to revive the bulls for a potential push up towards next resistance at 24500 in the first step.

However, a break below the 23000 medium-term pivotal support is likely to open up scope for a deeper decline towards the next significant support at 21650/380 (the pull-back support zone of the former “symmetrical triangle range” bullish breakout, 61.8% Fibonacci retracement of the current up move from 24 June 2016 low to 09 September 2016 high of 24406 & the ascending trendline in place since 11 February 2016 low).

ASX 200 – Getting toppish in the medium-term

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Key Levels (1 to 3 weeks)

Pivot (key resistance): 5500/5520

Supports: 5436 (downside trigger), 5360 & 5320/300

Next resistance: 5580/5610

Medium-term (1 to 3 weeks) Outlook

The Australia 200 Index (proxy for the ASX 200 futures) has continued to be capped below the 5500/5520 medium-term pivotal resistance as it traded sideways since 04 October 2016.

In addition, the daily RSI oscillator is now testing the 50% level after inching downwards since last week. This observation suggests that the Index is getting vulnerable for a potential medium-term bearish breakdown as downside momentum continues to built-up.

Right now, a daily close below the 5436 downside trigger is likely to open up scope for a potential corrective decline towards the next support at 5360 with a maximum limit set at 5320/300 before the next medium-term upleg occurs. Do note that in the longer-term, the bullish dynamic remains intact for a potential “melt-up” move towards the key long-term resistance zone of 5780/720 (see weekly chart).

On the other hand, a clearance above 5500/5520 is likely to invalidate the preferred bearish bias to see the continuation of the up move towards the next resistance at 5580/5610.

DAX- Range bound holding above 10230 support

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Key Levels (1 to 3 weeks)

Pivot (key support): 10230

Resistances: 10700 & 10990/11190

Next support: 9760

Medium-term (1 to 3 weeks) Outlook

The Germany 30 Index (proxy for the DAX futures) has continued to trade in a 2-months sideways configuration (“Expanding Wedge”) in place since 15 August 2016 high of 10806.

The medium-term pivotal support of 10230 remains intact for the Index which is also close to the lower boundary of the aforementioned “Expanding Wedge” (see 4 hour chart). Technical elements are mixed at this juncture where the daily (medium-term) RSI oscillator is still holding above a key long-term support in place since 24 August 2015 but remains below a descending trendline resistance.

Therefore for the coming week, we expect the Index to trade within the range of 10230 and 10700. Only a break above 10700 is likely to trigger the start of another potential medium-term upleg to target the next resistance at 10990/11190.

Charts are from City Index Advantage TraderPro & eSignal as at Thurs, 13 Oct 2016

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