the week ahead for major stock indices 22 feb to 26 feb 2016 1798132016

Key Takeaways

• Last week, global equities have continued to shape the rally in place from 11/12 February 2016 lows. Our expected medium-term upside target has been met for the China A50 at 9045/9200.  In addition, the rest of the major indices are coming close to their respective expected targets; Nikkei 225 (16500/890), Hang Seng (19720), DAX (9830/930) and S&P 500 (1947/54).
• After a strong up move from 11 February 2016 low, equities now face a risk of a medium-term pull-back/consolidation as the first phase of this countertrend rally is likely to end soon. Watch these key resistances on the indices; Nikkei 225 (17290), Hang Seng (20380), China A50 (9590), DAX (9930) and S&P 500 (1963) 

Nikkei 225 – First phase of countertrend rally is coming to a potential end

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Intermediate resistance: 16500/890

Pivot (key resistance): 17290

Support: 15750/420

Next resistance: 17900

Medium-term (1 to 3 weeks) Outlook

Last week, the Japan 225 (proxy for the Nikkei 225 futures) has rallied as expected and printed a weekly high of 16344 (an up move of 10.5% from 12 February 2016 low of 14782). Please click here for a recap on our previous weekly outlook/strategy.

The on-going countertrend rally is now coming close to our medium-term upside target zone of 16500/890 as per highlighted last week. This resistance zone of 16500/890 is being derived from a confluence of technical elements. Firstly, it is the upper boundary of the bearish descending channel in place since 18 December 2015 high. Secondly, the former support congestion area from 26 January to 08 February 2016 now turns pull-back resistance. Just above the 16500/890 zone, there is another significant resistance level of 17290 derived from a key Fibonacci cluster (38.2% of the intermediate bearish cycle from 24 June 2015 high of 20962 to 12 February 2016 low of 14782 and the 1.00 Fibonacci projection of the upmove from 12 February 2016 low to 16 February 206 high of 16342 projected from 17 February 2016 low of 15628).

In addition, the daily (medium-term) RSI oscillator is coming close to its descending resistance which suggests that current rally in price action may stall soon. On the shorter-term, the 4 hour Stochastic oscillator has exited from its oversold region and still has room for further upside before reaching its extreme overbought level. This observations supports a potential last push up scenario towards the 16500/890 resistance zone.

Therefore, we are expecting the first phase of the current countertrend rally to end soon, wave (a) from the Elliot Wave Principal perspective. A potential final push up towards the intermediate resistance zone of 16500/890 with a maximum limit set of the 17290 medium-term pivotal resistance before a potential pull-back/consolidation occurs towards the 15750/420 support zone to shape the corrective wave (b).

On the other hand, failure to stall at the 17290 medium-term pivotal resistance may invalidate the pull-back/consolidation scenario for a further rally towards the next resistance at 17900

Hang Seng Index – Limited upside, due for a potential pull-back/consolidation 

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Intermediate resistance: 19720

Pivot (key resistance): 20380

Supports: 18680/540 & 18060

Next resistance: 21000

Medium-term (1 to 3 weeks) Outlook

The Hong Kong 50 Index (proxy for the Hang Seng Index futures) has continued to shaped the expected push up from the 18060 low of 11 February 2016 to print a current high of 19547 seen today, 22 February 2016 @11am, a rally of 8.2%.

Current price action is now coming close to our expected medium-term upside target of 19720 as per highlighted last week, coupled with the daily (medium-term) RSI oscillator coming close to its descending resistance. The 19720 resistance is considered as an inflection level as it is derived from a confluence of technical elements. Firstly, it is the minor swing highs area of 19 January 2016 & 01 February 2016. Secondly, a Fibonacci cluster zone (38.2% retracement of the decline from 24 December 2016 high to 11 February 2016 low and 0.764 projection of the up move 11 February 2016 low to 16 February 2016 high of 19275 @12pm projected from 17 February 2016 low of 18898 @12pm). Thirdly, it is the pull-back resistance of the former descending channel bearish breakout (in dotted blue on the 4 hour chart). The another significant resistance stands at 20380 which is close to the 50% Fibonacci retracement of the decline from 24 December 2016 high to 11 February 2016 low and, former swing lows area of 24 August 2015 to 29 September 2015 and the pull-back resistance of the former long-term ascending channel bearish breakout (see weekly chart).

Therefore, the Index may see a final push up (supported by the 4 hour Stochastic oscillator which is oriented to the upside towards its overbought region) to test the 19720 intermediate resistance with a maximum of limit set at the 20380 medium-term pivotal resistance to complete the first phase of the countertrend rally. Thereafter, a potential pull-back/consolidation is likely to occur for a drop towards the 18680/540 support zone.

However, a clearance above the 20380 medium-term pivotal resistance may see a further squeeze up to target the next resistance at 21000.

FTSE China A50 – Potential pull-back/consolidation looms

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Intermediate resistance: 9280/390

Pivot (key resistance): 9590

Supports: 8930/8870 & 8770/8670

Next resistance: 9950

Medium-term (1 to 3 weeks) Outlook

The China A50 Index (proxy for the FTSE China A50 futures) has shaped the expected rally and hit our medium-term upside target at 9045/9200 (click for here a recap).

The Index is now just below the upper boundary of the bearish descending channel in place since 23 December 2015 high at 9280/390 which also confluences closely with a Fibonacci projection zone of 0.764/1.00 of the rally from 01 February 2016 low of 8637 to 18 February high of 9186 @8am projected from 19 February 2016 low of 9005 @8am.

The next significant stands at 9590 which is the 38.2% Fibonacci retracement of the steep decline from 23 December 2015 high to 01 February 2016 low of 8637. In addition, the daily (medium-term) RSI oscillator is coming close to its pull-back resistance which suggests limited upside potential for the Index.

The Index may see a final push up towards the 9280/390 resistance zone with a maximum limit set at the 9590 medium-term pivotal resistance before a potential pull-back/consolidation occurs to take it down towards the 8930/8870 support.

On the flipside, a clearance above the 9590 pivotal resistance may invalidate the pull-back scenario to see the continuation of the countertrend rally to target the next resistance at 9950.

DAX – Potential pull-back/consolidation looms below 9650/9930 resistance

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Intermediate resistance: 9650

Pivot (key resistance): 9930

Support: 9100

Next resistance: 10280

Medium-term (1 to 3 weeks) Outlook

Last week, the German 30 Index (proxy for the DAX futures) has continued to push up as expected and printed a high of 9553 (a rally of 9.8% from 11 February 2016 low).

Current price action is now coming close to a medium-term significant resistance level of 9650 which is defined by a confluence of technical elements (the median line of the bearish descending channel in place since its all-time high of 12408 printed in April 2015, 1.00 Fibonacci projection of the rally from 11 February 2016 low to 16 February 2016 high of 9264 @8am projected from 17 February 2016 low of 9078 @12am and the close to the 38.2% Fibonacci retracement of the decline from 01 December 2015 high to 11 February 2016 low).

The next significant resistance stands at 9930 which is defined by the pull-back resistance of the bearish breakout from the former long-term trendline support from September 2011 low and the swing high area of 28 January 2016. In addition, the daily (medium-term) RSI oscillator is coming close to its descending resistance which suggests limited upside potential at this juncture.

Based on the Elliot Wave Principal, the Index is now shaping the potential final 5^th wave of the impulsive wave a/ of an intermediate degree that started from 11 February 2016 low. Thus, the Index may see a final push up towards the 9650 intermediate resistance to complete the wave a/ before the corrective wave b/ occurs for a potential pull-back/consolidation towards the 9100 support.

On the other hand, a break above the 9930 medium-term pivotal resistance is likely to invalidate the pull-back scenario to see an extension of the  wave a/ to target the next resistance at 10280.

S&P 500 – Potential final push up towards 1947/54 to end first phase of countertrend rally

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Intermediate resistance: 1947/54

Pivot (key resistance): 1963

Supports: 1900 & 1874

Next resistance: 1994

Medium-term (1 to 3 weeks) Outlook

The U.S. SP 500 Index (proxy for the S&P 500 futures) has shaped the expected countertrend rally and printed a weekly high of 1937 which is closed to our medium-term potential upside target zone of 1947/54 (click for here a recap).

Current price action has continued to inch higher and based on the daily (medium-term) RSI oscillator is still has some “residual” upside momentum left before reaching the overbought region.

Based on the Elliot Wave principal, the Index is likely to be shaping the final wave of the impulsive wave (a) that started from the 11 February 2016 low of 1807 for a push up towards the 1947/57 resistance zone which is defined closely by the 0.764 Fibonacci projection of the up move from 11 February 2016 low to 1837 high seen on 11 February 2016 @8pm projected from 17 February 2016 low of 1874 @12am, 50% Fibonacci retracement of the steep decline from 01 December 2015 high to 11 February 2016 low and the swing highs area of 13 January and  01 February 2016.

Therefore, we are expecting a potential final push up towards the 1947/54 intermediate resistance with a maximum set at the 1963 medium-term pivotal resistance to complete the first phase of the countertrend rally (wave (a)) before a potential pull-back/consolidation (wave (b)) materializes for a drop towards 1900 before 1874.

On the other hand, a clearance above the 1963 pivotal resistance is likely to invalidate the pull-back scenario to see a continuation of the countertrend rally towards the next resistance at 1994.

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