weekly technical outlook on major stock indices 07 nov to 11 nov no potential sign of major correcti

S&P 500 – Potential bear trap at 2090

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Key Levels (1 to 3 weeks)

Pivot (key support): 2090/85

Resistances: 2155 (upside trigger), 2174/80 & 2194

Next support: 1990

Medium-term (1 to 3 weeks) Outlook

Even though the U.S. SP 500 Index (proxy for the S&P 500 futures) has continued to decline since 28 October 2016 when the FBI announced that it has reopened Hillary Clinton’s private e-mail server case and dropped below the 2110/100  significant pull-back support but we are still hesitant to turn outright bearish from a technical analysis perspective as there is a risk of a bear trap at the 2090 level as per highlighted in our technical update on last Friday, 04 November 2016 (click here to recap the details).

All the elements are per highlighted in last Friday’s 04 November 2016 update still hold and now I will elaborate further on why the market has already priced in a 50% chance of a Trump victory since 28 October 2016 and in the case of an actual Trump victory, the stock market may not tumble severely of a similar magnitude as seen on Brexit, 24 June 2016.

Market participants’ fear and greed behaviour can be deciphered from the VIX index (a measure of implied volatility of S&P 500 index options (both calls and puts). The movement of S&P 500 and VIX are inversely related in general.

With reference on the 3^rd chart, the one week before vote on the U.K’s EU exit referendum, the VIX futures (a tradable instrument of the index) had tumbled from a high of 22.20 on 16 June 2016 to a low of 16.07 on 24 June 2016 (before the start of the vote counting on the U.K. referendum) which represented a decline of 27% and risk assets (equities) staged a corresponding rally. This observation suggested that market participants had turned complacent ahead of the U.K. referendum. On the contrary, since the probe announced by the FBI on 28 October 2016 to reopen Hillary Clinton’s private e-mail server case, the VIX futures had increased from a low of 15.74 on 28 October 2016 to a high of 19.85 printed on 03 November 2016 which represented an increase of 26% and it was also above two standard deviation above its mean. This observation suggests that some degree of fear has already been priced into the stock market in anticipant of a Trump victory which is different from the “complacency behaviour” seen before the Brexit vote.

Therefore, we are still keeping our potential bear trap view above 2090/85 but the Index needs to clear above 2155 (a daily close) to see a more pronounced up move to target the next resistance at 2174/80 and even a retest on its current all-time high at 2194.

However, a break below 2090/85 is likely to unleash a deeper decline towards the key long-term pivotal support at 1990.

Nikkei 225 – Need to surpass 17500 key resistance

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Key Levels (1 to 3 weeks)

Pivot (key support): 16960/800

Resistances: 17500 & 18000

Next support: 16340 & 15900

Medium-term (1 to 3 weeks) Outlook

The Japan 225 Index (proxy for the Nikkei 225 futures) has challenged the medium-term pivotal support of 1690 on last Friday, 04 November U.S. session as it printed a low of 16818 but it has continued to hold above the lower boundary of the medium-term ascending channel in place since the 24 June 2016 low trigged by Brexit (see daily chart).

In addition, other technical elements such the daily RSI oscillator has stage a rebound from its significant support that has coincided with prior bullish reversals seen in price action of the Index and the short-term 4 hour Stochastic has just exited from its oversold region with a bullish divergence signal. These observations suggest a revival of upside momentum of price action.

Therefore, despite last Friday, 04 November 2016 challenge on the 16960 medium-term pivotal support, we have considered that as a “noise” and maintain our bullish bias.  Now the Index needs to clear (a daily close above) the “stubborn” resistance at 17500 (neckline of the basing formation in place since 11 February 2016 low & descending trendline from the major swing high of June 2015) in order to unleash a further potential rally to target 18000 next.

On the other hand, a break below 16960/800 is likely to open up scope for a multi-week decline towards the next supports at 16340 and 15900 within a longer-term sideways range configuration (see daily chart).

Hang Seng Index – Testing 22700 medium-term support

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Key Levels (1 to 3 weeks)

Pivot (key support): 22700/470 (excess)

Resistances: 23100 (upside trigger), 24500 & 25400

Next support: 21680/400

Medium-term (1 to 3 weeks) Outlook

The Hong Kong 50 Index (proxy for Hang Seng Index futures) has breached below the medium-term support at 22700 on last Friday, 04 November after the closure of the cash market due to a sudden announcement of an increase in stamp duty to 15% on all Hong Kong residential properties for non-first-time buyers (individuals and corporates) with effect from 05 November 2016.

This is the second time that the Hong Kong government has raised the property stamp duty in last three years in an effort to curb soaring real estate prices. The last increase was announced in 22 February 2013.

Interestingly, in today’s cash market opening session, 07 November, the Index has gapped up and traded back up above the 22700 medium-term pivotal support. In addition, technical elements are not upright bearish yet such as the longer-term weekly RSI oscillator (a momentum indicator) which is still holding right at its key pull-back support and 50% level (refer to the weekly chart).

Therefore, we are still maintaining our medium-term (1 to 3 weeks) bullish bias on the Hong Kong 50 Index above 22700/470 (excess) level but it needs to have a daily close above 23100 (potential upside trigger) to validated a more sustainable potential rally to target the next resistance at 24500 with a maximum limit set at 25400.

The aforementioned 23100 upside trigger level is significant as it is being derived by a confluence of elements. The descending trendline (depicted in pink on the 4 hour chart) in place since 11 Oct 2016 high, a congestion level since 16 August 2016 high and the 38.2% Fibonacci retracement of the recent decline from 11 October 2016 to last Friday, 04 November 2016 low of 22470.

On the other hand, failure to hold above the 22700/22470 medium-term support is likely to unleash a deeper decline towards 21680/400.

ASX 200 – Mixed elements, turn neutral

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Key Levels (1 to 3 weeks)

Supports: 5148 & 5040

Resistances: 5300, 5380 & 5460

Medium-term (1 to 3 weeks) Outlook

The Australia 200 Index (proxy for the ASX 200 futures) has broken below the 5260 medium-term pivotal support (also the ascending channel support in place since 10 February 2016 low) in the earlier part of last week on 01 November which invalidated our bullish bias.

It has tumbled and almost hit our short-term target/support at 5130 (printed a low of 5418 on last Friday, 04 November U.S. session). Technical elements are mixed now. On the positive front, last Friday low of 5148 is now resting right above the lower boundary of the long-term ascending channel in place since March 2009 low (the start of the primary bullish uptrend). On the negative side, even though the Index has staged a strong push up this morning (up 1.8%) due to FBI’s latest announcement not to press further new charges on U.S. presidential candidate Hillary Clinton’s private e-mail server case but it still below the pull-back resistance of 5300  which is the former medium-term ascending channel support that has been broken down on 01 November 2016 (refer to the 4 hour chart).

Therefore, we prefer to switch to a neutral stance now for the medium-term (1 to 3 weeks) between 5148 and 5300. Only a daily close above 5300 is likely to see a further up move target the next resistances at 5380 and 5460 (refer to the 4 hour chart).

DAX – Back at the 10230 support

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Key Levels (1 to 3 weeks)

Pivot (key support): 10230/200

Resistances: 10650 (upside trigger), 10990 & 11190

Next support: 9790

Medium-term (1 to 3 weeks) Outlook

Last week, the Germany 30 Index (proxy for the DAX futures) has failed to hold above the 10450 medium-term pivotal support and even reintegrated back into the recent “Expanding Wedge” range configuration from the 15 August 2016. Our preferred direct rise scenario has been invalidated.

Interestingly, the Index has now declined back towards the 10230/200 support that has managed to hold previous declines. Firstly, from the 08 September 2016 high of 10781 to the 10203 support which recorded a decline of 5.3%. Secondly, the Deutsche Bank crisis from 27 to 30 September 2016 (triggered by the US$14 billion fine imposed by the U.S. Department of Justice over mis-seliing of mortgage securities during 2005 to 2007) which represented a decline of 4.8% from 22 September 2016 high of 10707. In terms of fractal analysis, the recent decline that has started from 25 October 2016 high of 10829 to last Friday, 04 November 2016 low of 10202 is similar in terms of magnitude (down by 5.8%) as compared to the previous two declines. These observations suggest the last Friday low of 10202 is likely the inflection level to mark the start of a potential medium-term upleg. In addition, the daily RSI oscillator has also rebounded from a key trendline support that is closed to the oversold region.

The Index now needs to clear above (a daily close) the 10650 intermediate resistance (the reintegrated “Expanding Wedge” range top and pull-back resistance from the 30 September 2016 minor swing low) to see a further potential up move to target the next resistance at 10990 with a maximum limit set at 11190.

On the other hand, a break below 10230/200 is likely to invalidate the preferred recovery scenario for a deeper decline towards the next support at 9760.

Charts are from City Index Advantage TraderPro & eSignal

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