Weekly Technical Outlook on Major Stock Indices 02 Jan to 05 Jan 2018

S&P 500 – Risk of further pull-back before new rise

Key Levels (1 to 3 weeks)

Intermediate support: 2650

Pivot (key support): 2620

Resistances: 2697, 2720 & 2745

Next support: 2556/43

Medium-term (1 to 3 weeks) Outlook

The U.S. SP 500 Index (proxy for the S&P 500 futures) had rallied as expected in the past three weeks and almost hit the first predefined medium-term resistance/target of 2705 before 2017 closes. It printed a high of 2697 on 29 Dec 2017 before the U.S. cash market opened. Click here for a recap on our previous weekly technical outlook.

Thereafter, profit-taking took place and dragged the Index down by 1.07% to print a low of 2668.  From a technical analysis perspective, the medium-term uptrend from 21 Aug 2017 low remains intact. Key technical elements are as follow;

• Based on the Elliot Wave Principal/fractal analysis, the Index is still in the midst of undergoing its bullish impulsive primary degree/multi-month wave (3) with potential end target at 2720/45 (derived from a Fibonacci projection cluster & the upper boundary of an on-going major ascending channel in place since 11 Feb 2016 low) (see daily chart).
• The daily RSI oscillator (an indicator to gauge price momentum) remains positive above a corresponding support at the 50% level.
• Based on sector rotation analysis, the recent underperformance of the higher beta growth S&P Technology sector that has a 25% weightage in the S&P 500 (the highest for a single sector) has been mitigated by the performance of other sectors such as Industrials, Consumer Discretionary and Financials that have a combined weightage of around 37%.  Based on their respective relative strength chart analysis (using ETFs), their ratios are still showing signs of outperformance against the benchmark S&P 500 (see last chart).
• From a shorter time frame, the Index is now likely to be undergoing a corrective decline from its current all-time high of 2697 printed on 29 Dec as it broke below a minor ascending trendline support from 15 Nov 2017 low now turns pull-back resistance at 2690. In addition, Elliot Wave/fractal analysis also suggests that last Fri’s movement can be considered as  a minor degree corrective wave 4 dowleg where its potential end target rests at the 2650/20 zone (see 4 hour chart).
• The key medium-term support now rests at 2620 which is defined by the lower boundary of the medium-term ascending channel from 21 Aug 2017 low (depicted in light blue), the swing low area of 06 Dec 2017 and close to the 23.6% Fibonacci retracement of the up move from 21 Aug  2017 low to 2697 high.

Therefore, we maintain our bullish bias on the Index where it may shape a further corrective decline towards the intermediate support of 2650 with a maximum limit set at the 2620 key pivotal medium-term support before another potential upleg materialises to target the next medium-term resistance of 2720.

On the other hand, failure to hold above 2620 shall invalidate the bullish scenario to trigger a deeper corrective decline towards the next support at the 2556/43 zone.

Nikkei 225 –  Still stuck within a range

Key Levels (1 to 3 weeks)

Resistances: 23010, 23420 & 24200/540

Supports: 21830 & 21230/200

Medium-term (1 to 3 weeks) Outlook

The Japan 225 Index (proxy for the Nikkei 225 futures) had remained below the 23010 key medium-term resistance for the past three weeks. Since hitting a 20-year high if 23420 on 09 Nov 2017, the Index has continued to evolve within a “triangle range” consolidation configuration above the 21830 support.

No major changes on its key technical elements and the cash market will have shortened trading week where it closes today (02 Jan) and tomorrow (03 Jan) with another holiday on next Mon, 08 Jan. We maintain our neutrality stance for between 23010 and 21830. Only a clear break above 23010 shall validate a further potential bullish impulsive upleg sequence to target the next resistance at 24200/540.

Hang Seng - Bullish break above 29300, further potential upside after consolidation

Key Levels (1 to 3 weeks)

Intermediate support: 29700

Pivot (key support): 29300

Resistances: 30700/900 & 31750

Next support: 28000

Medium-term (1 to 3 weeks) Outlook

In the past three weeks, the Hong Kong 50 Index (proxy for Hang Seng Index futures) had continued its expected ascend as it broke above the 29300 upside trigger level.

It had ended 2017 with a stellar performance of 35% which made it one of the best performing major stock indexes (surpassed the U.S. S&P 500 2017 gain of 18%) and it almost hit the predefined medium-term resistance/target of 30700/800.  In today (Tues, 02 Jan) Asian session, the Index has a bullish follow though as it printed a current intraday high of 30431. Click here for a recap on our previous weekly technical outlook.

Current technical elements remain positive.

• The daily RSI oscillator (an indicator to gauge price momentum) remains positive as it continues to inch higher above a corresponding significant support at the 40% level. It stills has room for further potential upside before it reaches an extreme overbought level of 86% from Apr 2015.
• The next significant medium-term resistance stands at the 31750/960 zone which is defined by the major swing high area of Oct 2007 (before the Great Financial Crisis) and a Fibonacci projection cluster (see daily chart).
• Current price action is now coming close to the 30700/900 resistance (upper boundary of the major ascending channel in place since 28 Dec 2016 low & the 1.618 Fibonacci projection of the on-going up move from 07 Dec 2017 low; the potential end target of a minor degree bullish impulsive wave iii upleg derived from Elliot Wave/fractal analysis. In addition, the shorter-term 4 Hour Stochastic oscillator is now coming close to an extreme overbought level. Thus, the Index may soon see a minor pull-back/consolidate below 30700/900.
• The key medium-term support now rests at 29300 which was the former upside trigger level and close to the 50% Fibonacci retracement of the on-going up move from 07 Dec 2017 low.

We maintain the bullish bias where the Index may see an imminent pull-back/consolidation first towards the 29700 intermediate support at the 30700/900 intermediate resistance. As long as the 29300 key medium-term support holds, the Index is likely to shape another potential upleg to target the next medium-term resistance at 31750.

However, a break below 29300 may see a deeper corrective decline towards the next support at 28000.

ASX 200 – Bullish breakout from “triangle range”

Key Levels (1 to 3 weeks)

Intermediate support: 6026

Pivot (key support): 5986

Resistances: 6190 & 6240/60

Next support: 5940/10

Medium-term (1 to 3 weeks) Outlook

The Australia 200 Index (proxy for the ASX 200 futures) had staged a bullish breakout from our upper neutrality limit of 6033 which validated a bullish scenario.  Key technical elements remain positive as follow;

• After it printed its 2017 high of 6097 on 26 Dec 2017, the Index has staged a pull-back to retrace some of the gains seen from the bullish breakout of a three-week “triangle range” configuration in place since the recent 09 Nov 2017 swing high. Interestingly, the pull-back has stalled right at the lower boundary of a medium-term ascending from 21 Sep 2017 low now acting as a support at 6026 (see daily chart).
• The 4 hour Stochastic oscillator has just flashed a bullish divergence signal at its oversold region which suggests that the downside momentum of the recent pull-back in price action has started to abate.
• The next significant medium-term resistance stands at 6190 follow by 6240/60 (Fibonacci projection clusters & the upper boundary of the medium-term ascending channel from 21 Sep 2017 low).

Therefore as long as the 5986 key medium-term pivotal support holds, the Index is likely to shape another potential impulsive upleg to target the next resistance at 6190 in the first step.

On the other hand, failure to hold above 5986 indicates a failure bullish breakout where the Index shall undergo a corrective decline phase towards the next support at 5940/10 in the first step.

DAX – Corrective down move is still in motion

Key Levels (1 to 3 weeks)

Intermediate resistance: 13000

Pivot (key resistance): 13220

Supports: 12800 (downside trigger), 12660 & 12520/500

Next resistance: 13530/560

Medium-term (1 to 3 weeks) Outlook

The Germany 30 Index (proxy for the DAX futures) had challenged the 13220 predefined key medium-term pivotal resistance on 18 Dec 2017 (printed a high of 13347) before it reintegrated back below 13220.

This set of price movement has illustrated a “bull trap” and coupled with a surging EUR/USD that may surpass its key medium-term swing high of 1.2092 to target the next significant medium-term resistance at 1.2200/2280 advocates  further weakness in the Germany 30 Index. Based on intermarket  analysis, the DAX has a significant inverse correlation with the movement of  EUR/USD since Jun 2017.

Therefore, we maintain our bearish bias below the 13220 key medium-term pivotal resistance and a break below 12800 is likely to reinforce a further corrective dowleg to target the next supports at 12660 follow by 12520/500 before a potential recovery materialises.

However, another round of clearance above 13220 shall see a squeeze up to retest the 07 Nov 2017 swing high area of 13530/560.

Charts are from City Index Advantage TraderPro & eSignal

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