Weekly Technical Outlook on Major Stock Indices 06 Aug to 10 Aug 2018

S&P 500 – 2877/80 remains the key resistance to watch

Key Levels (1 to 3 weeks)

Intermediate resistance: 2845

Pivot (key resistance): 2877/80

Supports: 2790, 2740 & 2710

Next resistance: 2940

Medium-term (1 to 3 weeks) Outlook

The corrective rebound surged beyond the expected target of 2823 and rested the 26/27 Jul 2018 swing high area of 2840 (printed a current intraday high of 2845 in today, 06 Aug Asian session. No major changes on its key technical elements as follow;

• Since its 03 Apr 2018 low of 2552, the price action of the Index has continued to evolve within an impending bearish “Ascending Wedge” configuration (a typical bearish reversal pattern that forms at the end of a melt-up phase) with its upper limit/resistance now at around 2877/80 (the current all-time high area printed in 29 Jan 2018).
• Shorter-term momentum has turned negative again as the 4 hour Stochastic oscillator has traced out a bearish divergence signal at its overbought region.
• The relative strength (RS) ratio analysis on the key S&P sectors (represented by the respective sector exchange traded funds, ETFs has continued to show general weakness. The RS ratio of Technology (XLK) against S&P 500 has managed to rebound off from its significant support that keep its outperformance intact due to a positive feedback loop seen in the stock price of Apple as it surpassed a market capitalisation of US$ 1 trillion, the first U.S. based firm to accomplish such historical milestone. However, the rest of the “heavy weight risk sensitive” sectors; the Industrial and Financials have continued to underperform. In additional, the RS ratio of Consumer Discretionary (XLY) against S&P 500 is now testing its key support which indicates the risk of a reversal on its current outperformance. On the other hand, the laggards/defensive sectors; Utilities (XLU) and Consumer Staples (XLP) continue to outperform.  

Therefore, we maintain the bearish bias as long as the 2877/80 key medium-term pivotal resistance is not surpassed for another potential downleg to retest 2790 before targeting the next support at 2740 (the former minor swing high areas of 27/30 Jun & 03 Jul 2018, close to the lower limit of the “Ascending Wedge”) in the first step.

However, a clearance above 2877/80 invalidates the bearish scenario for the continuation of the melt-up phase towards the next resistance at 2940 (the upper boundary of the primary ascending channel from Feb 2016).

Nikkei 225 – Looking vulnerable for a potential downside breakdown

Key Levels (1 to 3 weeks)

Intermediate resistance: 22840

Pivot (key resistance): 23020

Supports: 22320, 21460 & 21100

Next resistance: 24200

Medium-term (1 to 3 weeks) Outlook

The Japan 225 Index (proxy for the Nikkei 225 futures) had continued to churn sideways below the 23020 key medium-term range resistance since 18 Jul 2018. Right now, the daily RSI oscillator (a momentum indicator) is showing a potential bearish breakdown from its 3-weeks old range configuration since 18 Jun 2018 as the RSI remains below its significant corresponding resistance at the 60 level and it is now breaking below 50.

Therefore, we flip back to a bearish bias below the 23020 key medium-term pivotal resistance and using the range support of 22320 as the downside trigger. A break below 22320 is likely to reinforce the start of potential bearish impulsive downleg to retest the 21460 support in the first step (the swing low of 05 Jul 2018 & the lower boundary of the major ascending channel in place since Jun 2016 low).

On the other hand, a daily close above 23020 invalidates the bearish scenario for a push up to retest 24200 (the medium-term swing high of 23 Jan 2018, a 27-year high).

Hang Seng – Further potential downleg scenario remains intact

Key Levels (1 to 3 weeks)

Intermediate resistance: 28000

Pivot (key resistance): 29100

Supports: 27000 & 26000/25500

Next resistance: 30100

Medium-term (1 to 3 weeks) Outlook

The Hong Kong 50 Index (proxy for Hang Seng Index futures) had a daily and weekly close below the 28000 major/primary ascending support in place since Feb 2016 low of 18056 which reinforces our potential multi-month corrective down move scenario.

Right now, we adjust slightly the key medium-term pivotal resistance to 29100 (the former range support of the 5-month sideways configuration since 09 Feb 2018) for a further potential downleg to target the next supports at 27000 follow by 26000/25500 next (the swing low of 6 Jul 2017, the lower boundary of the medium-term descending channel from 07 Jun 2018 high & a Fibonacci retracement/projection cluster).

On the other hand, a clearance above 29100 invalidates the bearish tone for an extension of the mean reversion rebound to test the next intermediate resistance at 30100.

ASX 200 – Medium-term uptrend at risk of bearish reversal

Key Levels (1 to 3 weeks)

Supports: 6200 & 5980

Resistances: 6350/80 & 6455/490

Medium-term (1 to 3 weeks) Outlook

Since its recent high of 6318 on 09 Jul 2018, U.S. session, the Australia 200 Index (proxy for the ASX 200 futures) has traded sideways above the 6200 predefined key medium-term pivotal support.

Right now, medium-term momentum has started to turn negative where the daily RSI oscillator has displayed a bearish divergence signal. These observations suggest that the medium-term uptrend in place since 04 Apr 2018 low is at risk of a shaping a bearish reversal. Thus, prefer to turn neutral first between 6200 and 6350/80.

A break (daily close below) 6200 validates the start of a potential multi-week corrective down move to target the next support at 5980 in the first step (swing low area of 29 May 2018 & the lower boundary of the major ascending channel in place since 10 Feb 2016 low).

DAX – Bearish momentum has emerged

Key Levels (1 to 3 weeks)

Intermediate resistance: 12660

Pivot (key resistance): 12900

Supports: 12400, 12100 & 11900/800

Next resistance: 13190

Medium-term (1 to 3 weeks) Outlook

The Germany 30 Index (proxy for the DAX futures) has staged a breakdown below an intermediate ascending trendline support from 27 Jun 2018 swing low area of 12100 on last Thurs, 02 Aug. Thereafter, the corrective rebound that materialised has managed to stall right at the 12650/660 pull-back resistance of the former ascending trendline support.

In addition, medium-term momentum has started to turn negative as the daily RSI oscillator remains below its corresponding significant resistance at the 60 level and it is now breaking below the 50 level.  These observations suggest a built-up of downside momentum of price action.

Therefore, we flip back to a bearish bias with 12900 as the key medium-term pivotal resistance and a break below 12400 (now the major/primary ascending trendline support from Feb 2016 low) is likely to reinforce the start of a potential multi-week corrective decline to target the next supports at 12100 (swing low areas of 27/28 Jun 2018) and 11900/800 (the neckline support of the Head & Shoulders).

On the other hand, a clearance above 13190 negates the bearish tone for another choppy up move to retest the 13190 range resistance in place since 22 May 2018.    

Charts are from City Index Advantage TraderPro & eSignal