weekly technical outlook on major stock indices 20 feb to 24 feb sp 500 is right below a major risk

S&P 500 – Right below 2360 major risk level where a potential decline looms

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Key Levels (1 to 3 weeks)

Intermediate resistance: 2360 (major risk level)

Pivot (key resistance): 2385 (excess)

Supports: 2300, 2256 & 2214

Next resistance: 2467/78

Medium-term (1 to 3 weeks) Outlook

Last week, the U.S. S&P 500 Index (proxy for the S&P 500 futures) has continued its relentless climb and it printed an all-time of 2351 on last Friday, 17 February 2017.  Since 23 January 2017, it has recorded four consecutive weekly higher closes.

The main driver of this rally were the “promises” made by U.S. President Donald Trump to enact bold and aggressive tax cuts that could increase the profit margins of corporations. From a technical analysis perspective, the current optimism seen in U.S. stock prices are getting overstretched and various elements are advocating for a potential multi-week decline.

• The S&P 500 has hit its major risk zone of 2335/60 which is defined by a Fibonacci cluster and the upper limit of 2360 is also the exit target of the recent bullish breakout from its multi-month consolidation from 17 May 2015 to 07 February 2016 (see weekly chart).
• The upper limit of 2360 is also now the upper boundary of an impending bearish “Ascending Wedge” configuration in place since 11 February 2016 low (see daily chart). The “Ascending Wedge” is a bearish reversal chart pattern that tends to form at the end of an extended up move.
• Since the start of the primary degree up move from 11 February 2016 low (triggered by the 2^nd China yuan devaluation) and the post U.S. President Election (09 November 2016), the leading sector has been the Financials. Its sector ETF (XLF) has staged a rally of 17% which has outperformed the S&P 500 by a margin of almost 10% (refer to the 4^th chart).
•  The technical chart of the Financials sector ETF (XLF) is now showing limited upside potential as it is now approaching the lower limit of the major resistance zone of 24.84 as defined by the upper limit of the long-term bullish ascending channel in place since March 2009 low and a Fibonacci cluster (1.5% away from last Friday, 17 Feb close of 24.47). In addition, its recent upside momentum of price action has started to show exhaustion signs as the daily RSI oscillator has flashed a bearish divergence signal at its extreme overbought level (refer to the 5^th chart).
• The one-month VIX futures (front month, March 2017) has started to stage a rebound from its complacency zone of 12.80/10.10 and recorded a weekly close of 13.12 as at 17 February 2017 (refer to the 6^th chart). Also, as seen from the daily chart of the VIX futures, its recent price action has started to coil up and the Bollinger Band Width has triggered a “squeeze” reading which precedes a sharp move as seen in the recent past four occasions as per highlighted by the blue shaded boxes (refer to the 7^th chart).  Therefore from a contrary opinion standpoint, the recent low volatility is caused by a heightened optimism that the recent up move in the S&P 500 can continue to go on. The current low volatility environment is likely to have reached an inflection point where it is vulnerable for a potential abrupt upside reversal that can triggered a decline in the S&P 500.

Therefore, as long as the major significant resistance of 2360/85 (excess) is not surpassed, the Index may see a potential multi-week decline at this juncture towards 2300 before 2256.

However, a clearance above 2380 may negate the preferred bearish tone to see a further melt-up to target the next resistance of 2467/78.

Nikkei 225 – Potential bearish bias remains intact below 19575

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Key Levels (1 to 3 weeks)

Intermediate resistance: 19310

Pivot (key resistance): 19575

Supports: 18900, 18700 & 18455/230

Next resistance: 19860/20000

Medium-term (1 to 3 weeks) Outlook

From a low of 18795 printed on 07 February 2017, the Japan 225 Index (proxy for the Nikkei 225 futures) has staged a rally of 3.95% to a high of 19538 on 14 February 2017. Interestingly, it has managed to stage a bearish reaction below the 19575 medium-term pivotal resistance as per highlighted in our prior weekly technical outlook report.

No major changes in technical elements and from an intermarket analysis perspective, the USD/JPY remains under pressure below the 115.35 resistance. Additional element to take note will be the intermediate ascending trendline from 18 January 2017 low that is now acting as a support at 18900.

Therefore, we are maintaining our bearish bias below the 19575 medium-term pivotal resistance towards the 18900 intermediate support in the first step. A break below 18900 is likely to open up scope for a further downleg to target the next support at 18700.

On the other hand, a clearance above 19520 is likely to negate the preferred bearish view to revive the “squeeze up” scenario towards the 19860/20000 major key resistance zone.

Hang Seng Index -  24100 resistance met, mixed resistance

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Key Levels (1 to 3 weeks)

Resistances: 24580 & 25480

Supports: 23640 & 23100/22820

Medium-term (1 to 3 weeks) Outlook

Last week, the Hong Kong 50 Index (proxy for Hang Seng Index futures) has rallied and hit the 24100 target/resistance as expected.

Even though, the Index is now coming close to a significant resistance zone of 24410/24580 which is defined by the previous swing high area of 09 September 2016 and the upper boundary of a medium-term bullish ascending channel in place since 23 December 2016 low, there are no clear exhaustion signs yet to anticipate a bearish reversal at this juncture.

Therefore, we prefer to adopt a neutral stance between 24580 and 23640 for now.

ASX 200 – Back at 5830/50 resistance, risk of a decline

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Key Levels (1 to 3 weeks)

Pivot (key resistance): 5830/50

Supports: 5715 & 5580/70

Next resistance: 6000 (key long-term resistance)

Medium-term (1 to 3 weeks) Outlook

Last week, the Australia 200 Index (proxy for the ASX 200 futures) has rallied but interestingly, the recent up move has stalled right at the previous significant swing high area of 5830/50.

Technical graphical elements suggest the Index may have formed a bearish “Double Top” reversal configuration that indicates the potential end of the intermediate degree up move in place since 04 November 2016 low.

In addition, the shorter-term(4 hour) Stochastic oscillator has traced out a bearish divergence signal which suggests that the recent upside momentum of price action has started to wane.

Therefore as long as the 5850 medium-term pivotal resistance is not surpassed, the Index is likely to see a potential decline towards 5715 before targeting the neckline support of the “Double Top” at 5580/70.

However, a clearance above the medium-term pivotal resistance of 5850 is likely to invalidate the preferred bearish scenario to see a squeeze up towards the 6000 key long-term resistance.

DAX – Recent rally stalled at the 11800/12020 resistance

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Key Levels (1 to 3 weeks)

Intermediate resistance: 11894

Pivot (key resistance): 12200 (excess)

Supports: 11465/30 & 10810

Next resistance: 12410

Medium-term (1 to 3 weeks) Outlook

Last week, the Germany 30 Index (proxy for the DAX futures) has staged the expected final push up and it is now approaching to retest the 11800/12020 resistance zone.

Technical elements remain unchanged as follow;

• 11800/12020 resistance zone is the bullish breakout exit potential target from former multi-month choppy range configuration in place since 15 August 2016 high (see daily chart).
• The 11800/12020 resistance zone also confluences with a Fibonacci projection cluster (see daily chart).
• The intermediate support to watch will be at 11465/35 which is defined by recent congestion swing lows seen from 17 January 2017 to 07 February 2017 and the 23.6% Fibonacci retracement of the up move from 09 November 2016 low (post U.S. President Election) to the recent high of 26 January 2017.

Therefore, we are maintaining our bearish bias below the 12200 medium-term pivotal resistance for a potential decline towards 11465/30 and a break below it may see further downside acceleration to target the next support at 10810.

On the other hand, a clearance above 12200 is likely to invalidate the preferred bearish scenario to see a further squeeze up towards the current all-time high area of 12410 seen in April 2015.

Charts are from City Index Advantage TraderPro & eSignal

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