weekly technical outlook on major stock indices 10 apr to 14 apr potential underperformance in nikke

S&P 500 – Further corrective decline below 2373/76 cannot be ruled out

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Key Levels (1 to 3 weeks)

Intermediate resistance: 2364

Pivot (key resistance): 2373/76

Supports: 2321, 2309/2300 & 2280

Next resistances: 2400 & 2425

Medium-term (1 to 3 weeks) Outlook

Last week, the U.S. S&P 500 Index (proxy for the S&P 500 futures) had traded sideways below the 2373/76 medium-term pivotal resistance after a test and reaction off from the 2373/76 level seen on Wednesday, 05 April (click here for a recap). Interestingly, the USD rally seen on last Friday, 08 April post U.S. nonfarm payrolls did not create a positive feedback loop back into U.S. equities. Thus, there seems to be a breakdown in the “Trumpflation trade” for now where the S&P 500 had surged together with a stronger USD in the past.

One of the reasons can be attributed to creeping risk-off factors in the marketplace now such as a potential change in U.S. foreign policy in Syria after President Trump ordered his first military strike on Syria last Friday that can increase tensions between U.S. and Russia that is still backing Syrian President Assad. Secondly, the upcoming 1^st round of the French presidential election held on 23^rd April where polls are in favour of anti-Euro Le Pen to win the 1^st round.

Thus, the aforementioned risk –off factors can be mirrored in the sensitive risk proxy, USD/JPY where its post NFP rally was capped below the 111.60/112.20 key medium-term resistance (refer to its chart under Nikkei 225).

Current key technical elements on the Index as follow;

• Since its current all-time high of 2400 seen in 02 March 2017, the Index has been trading within an “Expanding Wedge/Triangle” consolidation  pattern with its upper boundary(resistance) at 2373 and lower boundary (support) now at 2290/80 (see 4 hour chart).
• The “Expanding Wedge/Triangle” support at 2290/80 also confluences with the lower boundary of a medium-term bullish ascending channel in place since 11 February 2016 and the 38.2% Fibonacci retracement of the up move from 04 November 2016 low to the current all-time high of 2400.
• The higher beta sectors (Financials & Technology) that are leading the rally since post U.S. presidential election, where their respective ETFs (XLF – Financials & XLK-Technology) are still exhibiting negative technical elements below their respective resistances at 24.45 and 53.62. Therefore, further potential decline in XLF and XLK can contribute to further weakness in the S&P 500 (refer to the first two charts).

Maintain bearish bias.  As long as the 2373/76 medium-term pivotal resistance is not surpassed, the Index is likely to see another potential downleg to retest 2321 before targeting the next support at 2309/2300 with a maximum limit set at 2290/80 before a potential recovery materialises.

However, a clearance above 2376 may invalidate the preferred bearish tone to see the return of the bulls to retest the current all-time high area of 2400 and even open up scope for a further rally towards 2425 next.

Nikkei 225 – Further potential weakness below 18900/19070

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Key Levels (1 to 3 weeks)

Intermediate resistance: 18900

Pivot (key resistance): 19070

Supports: 18510 & 18360/320

Next resistances: 19350 & 19700/735

Medium-term (1 to 3 weeks) Outlook

Last week, the Japan 225 Index (proxy for the Nikkei 225 futures) had tumbled and hit the expected downside target/support of 18700/640 (printed a low of 18509 on Thurs, 07 April in the aftermath of the U.S. airstrikes on Syria).

Thereafter, it managed to stage a rebound of 1.8% to print a high of 18859 on Fri, 08 April (U.S. session) after it shrugged off a worse than expected U.S. nonfarm jobs payroll data for March (98K versus 180K consensus) and attributed this “low” number due to a one-time weather-related issue (snowstorm that occurred in early to mid-March). Please click here for a recap on our previous weekly technical outlook report.

Current key technical elements are as follow;

• Since its minor swing high area of 19350 seen on 29 March 2017, the Index has started to evolve into a bearish descending channel with its upper boundary now action as a resistance at 18900 which also confluences closely with the former swing low areas of 31 January/27 March/31 March 2017 (see 4 hour chart).
• The lower boundary (support) of the aforementioned descending channel rests at 18360/320 which also confluences with a Fibonacci projection cluster (see 4 hour chart).
• Despite last Friday (08 April) recovery from the negative reaction triggered by the U.S. airstrikes on Syria, the Index has formed a 4 hour bearish “Shooting Star” candlestick pattern right below the descending channel resistance of 18900. In addition, the daily RSI oscillator remains bearish below its first resistance (former ascending trendline) coupled with the shorter-term 4 hour Stochastic right at its overbought zone. These observations suggest that last Friday’s up move lack upside momentum, thus the Index is at risk to kick start a potential bearish reversal at this juncture.
• The significant medium-term resistance now stands at 19070 which is defined by the descending trendline from 14 March 2017 range top, the pull-back resistance of the former major ascending trendline support from 24 June 2016 low, close to the 61.8% Fibonacci retracement of the recent decline from 29 March 2017 high to 07 April 2017 low of 18509.
• Based on intermarket analysis, the USD/JPY continues to exhibit bearish elements below 111.60/112.20 key medium-term resistance that advocates for a further potential decline towards the 109.10/108.40 medium-term support zone. Given its direct correlation with the Nikkei 225, a further decline in the USD/JPY is likely to reinforce further weakness in the Nikkei 225 (refer to the 3^rd chart).

Therefore as long as the 19070 medium-term pivotal resistance is not surpassed, the Index is likely to undergo another potential downleg to target the next support zone of 18360/320.

On the other hand, a clearance above 19070 may negate the preferred bearish tone to see a further corrective rebound to retest 19350.

Hang Seng Index – Consolidation above 24000/23850 before new potential upleg

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Key Levels (1 to 3 weeks)

Intermediate support: 24000

Pivot (key support): 23850

Resistances: 24670, 25135 & 25480

Next support: 23100/22820

Medium-term (1 to 3 weeks) Outlook

The Hong Kong 50 Index (proxy for Hang Seng Index futures) has continued to trade sideways above the intermediate support of 24000.

Current key technical elements are as follow;

• Last Friday (07 April) sell off seen in the early Asian session has tested and held at the lower boundary of the medium-term bullish ascending channel in place since 28 December 2016 low (see 4 hour chart).
• The 4 hour Stochastic oscillator has continued to display a bullish divergence signal which suggests that last Friday’s decline lack downside momentum for a follow-through to trigger further downside pressure in price action (see 4 hour chart).
• The daily RSI has not yet broke below its corresponding ascending trendline support in place since 28 December 2016.

Maintain bullish bias as long as the 23850 medium-term pivotal support holds and a break above 24670 (21 March 2017 swing high) is likely to reinforce a further up move to target next resistances at 25135 and 25480.

However, failure to hold above 23850 may invalidate the bullish scenario to see a deeper decline towards the next support at 23100/22820.

ASX- Consolidation above 5830/5800 before new potential upleg

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Key Levels (1 to 3 weeks)

Intermediate support: 5830

Pivot (key support): 5800

Resistances: 5945 & 6000

Next supports: 5674 & 5580/70

Medium-term (1 to 3 weeks) Outlook

The Australia 200 Index (proxy for the ASX 200 futures) had traded sideways for the whole of last week after it tested the 5900 minor range top and psychological level on 30 March 2017. In addition, it had managed to hold above the 5800 medium-term pivotal support.

Current key technical elements are as follow;

• The daily RSI oscillator continues to be bullish above is ascending trendline support in place since 04 November 2016 low without any bearish divergence signal. These observation suggest that medium-term upside momentum of price action remains intact.
• The long-term key resistance remains at 6000 which also coincides closely with the upper boundary of the ascending channel in place since 10 February 2016 low.
• The shorter-term 4 hour Stochastic oscillator has reached an extreme overbought level where it is likely to translate to a potential push down in price action towards the minor range support of 5830 (see 4 hour chart).

Maintain bullish bias but do expect a potential consolidation first between 5900 and 5830 before another upleg materialises to target the next resistances at 5945 and 6000.

However, failure to hold above the 5800 medium-term pivotal support may invalidate the preferred bullish scenario for a deeper decline to retest the minor swing low areas of 01 March/22 March 2017 at 5674 and even 5580 next.

DAX – Minor pull-back towards 12080/30 before new potential rise

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Key Levels (1 to 3 weeks)

Pivot (key support): 12080/30

Resistances: 12310 & 12410/480

Next supports: 11900 & 11465/30

Medium-term (1 to 3 weeks) Outlook

Last week, the Germany 30 Index (proxy for the DAX futures) had traded sideways below its current all-time high area of 19410 seen in April 2015.

Current key technical elements are as follow;

• Despite its range bound movement seen last week, the Index is still evolving within a medium-term bullish ascending channel in place since 09 November 2016 low with its lower boundary acting as a support at 12080.
• The aforementioned medium-term ascending channel support of 12080 also confluences with the former swing high/congestion area of 20 March/25 March 2017 and close to the 50% Fibonacci retracement of the recent rally from 22 March 2017 low of 11850 to last Friday, 31 March 2017 high.
• In conjunction, the daily RSI oscillator remains bullish above its ascending trendline support in place since 04 December 2016.
• However, the shorter-term (4 hour) Stochastic oscillator has flashed a bearish divergence signal at its overbought zone which highlights the risk of a further minor decline in price action.
• The significant medium-term resistance stands at 12410/480 which is defined by the current all-time high area seen in April 2015, a Fibonacci projection cluster and the upper boundary of a short-term ascending channel in place since 07 February 2017 low (see daily & 4 hour charts).

Therefore, the Index now may see a further decline below the 12310 intermediate resistance towards the 12080/30 medium-term pivotal support before another potential upleg materialises to target the 12410/480 resistance.

On the other hand, failure to hold above 12080/30 may jeopardise the bulls to see a deeper pull-back to retest 11900 (congestion area from 08 March to 27 March 2017). Only a break below 11900 is likely to trigger a corrective decline to target the next support at 11465/30.

Charts are from City Index Advantage TraderPro & eSignal

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