Weekly Technical Outlook on Major Stock Indices 05 Feb to 09 Feb 2018

S&P 500 – Corrective decline remains intact (risk of relief rebound first)

Key Levels (1 to 3 weeks)

Intermediate resistance: 2790/97

Pivot (key resistance): 2823

Supports: 2740, 2694 & 2668

Next resistance: 2880

Medium-term (1 to 3 weeks) Outlook

Last week, the U.S. SP 500 Index (proxy for the S&P 500 futures) had declined as expected right below the 2880 key medium-term pivotal resistance and hit our support/target at 2768/68 (printed a low of 2755 on last Fri, 02 Feb 2018). How do we anticipate such a decline? Click here for a recap on our previous weekly technical outlook.

Current technical elements are still advocating for further potential medium-term (1 to 3 weeks) of correction down move but do expect the risk of shaping a short-term (1 to 3 days) relief rally in the early part of next week. Key elements as follow;

• The daily RSI oscillator has broken below a significant multi-month trendline support in place since Aug 2017 at the 57% level. It still has room to shape further potential downside before it reaches an extreme oversold of 25% since Nov 2017. These observations suggest that medium-term downside momentum of price action remains intact.
• Based on the Elliot Wave Principal/fractal analysis, the Index is likely in the midst of shaping a medium-term (multi-week) corrective decline phase, wave (4) to retrace the primary degree (multi-month/year) bullish impulsive wave (3) from 27 Jun 2016 low that has topped out below 2880.
• Last week’s price action has traced out three bearish impulsive wave down of a minor degree from its current all-time high of 2877 (labelled as 1,2,3 on the 4 hour chart) with the potential on-going wave 3 potential end target at 2740 (1.618 Fibonacci projection from the 29 Jan 2018 high that also confluences with the minor swing low areas of 08/10 Jan 2018). These fractal movements are likely a set of 5 waves to complete the intermediate degree bearish impulsive wave a/ of the (multi-week) corrective decline phase, wave (4) (see 4 hour chart).
• Since we are approaching  2740 which implies that a minor degree “relief rebound” wave 4 may occur soon supported by the an extreme oversold reading seen in the shorter-term 4 hour Stochastic oscillator.
• The intermediate resistance now stands at 2790/97 with the key medium-term resistance at 2823 (former range support zone of 31 Jan/01 Feb 2018, descending trendline from 29 Jan 2018 & close to the 50% Fibonacci retracement of the on-going decline from 29 Jan 2018 to last Fri, 02 Feb 2018 low) (see 4 hour chart).
• The next significant medium-term support rests at the 2694/2668 zone (swing low area of 30 Dec 2017, the ascending channel support from 21 Aug 2017 & a Fibonacci retracement cluster.

Therefore, we maintain the bearish bias with the risk of a minor relief rebound coming in at the start of the week above the 2740 support towards 2790/97 with a maximum limit set at the 2823 key medium-term pivotal resistance before another potential downleg materialises to target the next supports at 2694 and even 2668 next.  Do bear in mind the longer-term primary uptrend running from Feb 2016 low is still intact.

On the other hand, a clearance above 2823 should invalidate the bearish scenario for a squeeze up test the key 2880 resistance.

Nikkei 225 – Corrective decline validated but risk of an imminent relief rebound

Key Levels (1 to 3 weeks)

Intermediate resistance: 23490

Pivot (key resistance): 23800

Supports: 22820/710, 22400 & 21990/890

Next resistance: 24200

Medium-term (1 to 3 weeks) Outlook

The Japan 225 Index (proxy for the Nikkei 225 futures) had staged a bearish breakdown below 23325 (the lower limit of the neutrality zone as per highlighted in our previous weekly technical outlook) which validated the start of a potential medium-term (1 to 3 weeks) of corrective decline phase. Current key elements are as follow;

• The daily RSI oscillator has broken below a significant multi-month trendline support in place since Nov 2017 at the 50% level. It still has room to shape further potential downside before it reaches an extreme oversold of 25% since Apr 2017. These observations suggest that medium-term downside momentum of price action remains intact.
• The on-going decline in place since 23 Jan 2018 (right below the 24200 predefined major resistance) is now coming close to a near-term support of zone of 22820/710 (Fibonacci projection cluster & the former “triangle range” bullish breakout pull-back support) coupled with the shorter-term 4 hour Stochastic oscillator that is coming close to its extreme oversold level. These observations suggest the risk of minor relief rebound above 22820/710.
• The intermediate resistance stands at 23490 (former minor swing area of 01 Feb 2018 & close to 38.2% Fibonacci retracement of the on-going decline from 23 Jan 2018 high to 02 Feb 2018 low) follow by the key medium-term resistance at 23800 (congestion zone of 18/29 Jan 2018 & close to the 61.8% Fibonacci retracement of the on-going decline from 23 Jan 2018 high to 02 Feb 2018 low) (see 4 hour chart).
• The next significant medium-term support rests at 21990/890 (swing low area of 15 Nov 2017 & the 23.6% Fibonacci retracement of the primary uptrend from 24 Jun 2016 low to 23 Jan 2018 high).

Therefore, we turn bearish with the possibility of a relief rebound first above 22820/710 intermediate support towards 23490 with the maximum limit set at the 23800 key medium-term pivotal resistance before another potential downleg materialises to target the next supports at 22400 follow by 21990/890 next.

However, a break above 23800 should jeopardise the bearish corrective decline scenario to turn the tide back to the bulls for a recovery to retest 24200 before targeting the next resistance at 24540.

Hang Seng – Potential corrective mean reversion decline in progress

Key Levels (1 to 3 weeks)

Intermediate resistance: 32430

Pivot (key resistance): 33020

Supports: 31700, 31445/300 & 30140

Next resistance: 34430/530

Medium-term (1 to 3 weeks) Outlook

Last week, the Hong Kong 50 Index (proxy for Hang Seng Index futures) had staged a bearish breakdown below the 32615 downside trigger level as expected and traded lower to print a lower minor low of 32130 in last Fri, 02 Feb European session. Our preferred medium-term (1 to 3weeks) corrective mean reversion decline scenario below 33430/530 resistance has been reinforced. Click here for a recap on our previous weekly technical outlook.

Current key elements are as follow;

• The daily RSI oscillator has continued to inch downwards from its extreme overbought level of 86% and still has room for further potential downside (depicted by the pink box) before it reaches a significant multi-month support of 40% in place since Mar 2017. These observations suggest that medium-term downside momentum of price action remains intact.
• In the shorter-term (1 to 3 days), the Index has now reached an intermediate support zone of 31700 which is defined by the minor congestion area of 17 Jan 2018 & close to the 1.00 Fibonacci projection of the recent decline from 29 Jan 2018 high to 31 Jan 2018 minor low of 32314 projected from 31 Jan 2018 minor swing high of 33021. In addition, the shorter-term 4 hour Stochastic oscillator is now at an extreme oversold level. These observations suggest the risk of an imminent minor relief rebound (see 4 hour chart).
• The key medium-term resistance now stands at 33020 which is defined by the 31 Jan 2018 swing high and 61.8% Fibonacci retracement of the on-going decline from 29 Jan 2018 high to 02 Feb 2018 low.

Therefore, we maintain the bearish bias with the risk of a shaping a minor relief rebound first above 31700 and as long as the 33020 key medium-term pivotal resistance is not surpassed, the Index is likely to shape another potential downleg to target the next support at 31445/300 (the pull-back support of the former major ascending channel resistance from 28 Dec 2016 & the 38.2% Fibonacci retracement of the up move from 07 Dec 2017 low to 29 Jan 2018 high). A break below 31300 is likely to trigger a further downside acceleration towards the next support at 30140 (the former swing high area of 21 Nov 2017 & the 61.8% Fibonacci retracement of the up move from 07 Dec 2017 low to 29 Jan 2018 high).

On the other hand, a clearance above 33020 should negate the bearish tone to see a retest on the current all-time high zone of 33430/530 and above it opens up scope for an extension of the up move to target the next resistance at 34200 (Fibonacci projection cluster) in the first step.

ASX 200 – Still stuck within a range

Key Levels (1 to 3 weeks)

Supports: 5986 & 5920/5900

Resistances: 6109/130, 6190 & 6240/60

Medium-term (1 to 3 weeks) Outlook

Last week, the Australia 200 Index (proxy for the ASX 200 futures) was the most resilient major index that we covered in our weekly outlook as it was the sole one that held above its key medium-term support at 5986 (the lower limit of the neutrality range). It did test the upper limit of the neutrality zone at 6109 (printed an intraday high of 6130 but failed to record a daily close above 6109 on last Fri, 02 Feb U.S. session).

This 2 week plus of range bound trading environment since 17 Jan 2018 can be attributed to the Australian stock market earnings season which kick started in Feb 2018. Consensus estimates are pegged at 11% earnings growth for the next 12 months based on data from Bloomberg.

Technically, it is still stuck in the medium-term range zone of 6109/130 where it has started to evolve into a longer-term potential “Expanding Wedge” range configuration since 09 Nov 2017 high of 6055 (see daily chart).

Therefore, we maintain the neutrality stance between 6109/130 and 5986. Only a clear breakout above 6109/130 is likely to see an upleg to target the next resistances at 6190 follow by 6240/60 next (Fibonacci projection cluster & upper boundary of the “Expanding Wedge”). On the flipside, failure to hold above 5986 opens up scope for a potential corrective downleg to target the next support at 5920/5900 (15 Nov 2017 swing low & 50% Fibonacci retracement of the up move from 21 Sep 2017 low to 09 Jan 2018 high)

DAX – Further potential downside after relief rebound

Key Levels (1 to 3 weeks)

Intermediate resistance: 12845

Pivot (key resistance): 13000

Supports: 12430/355 & 11900/800

Next resistances: 13275 & 13560

Medium-term (1 to 3 weeks) Outlook

Last week, the Germany 30 Index (proxy for the DAX futures) had staged a bearish breakout below the 13130 (lower neutrality zone) and validated a corrective down move within a long-term primary uptrend in place since Feb 2016. It tumbled as expected and hit the support/downside target of 12820/740 (printed a low of 12685 in last Fri, 02 Feb U.S. session). Click here for a recap on our previous weekly technical outlook.

Current key elements are as follow;

• Based on the Elliot Wave Principal/fractal analysis, the on-going decline from its current all-time high of 13600 (printed on 23 Jan 2018) is likely not over. Current price action is undergoing a potential intermediate degree corrective wave 4/ with its potential end target at 11900/800 (38.2% Fibonacci retracement of the up move from 24 Jun 2016 low to 23 Jan 2018 high, the swing low areas of 11/29 Aug 207 & the long-term primary ascending trendline from Feb 2016 low) (see daily chart).
• The daily RSI oscillator has hit an extreme oversold level of 25% last seen on Jan 2016 coupled with the shorter-term 4 hour Stochastic oscillator which is also at an extreme oversold condition. These observations suggest that the Index may see an imminent relief rebound at this juncture.
• The intermediate support rests at 12430/355 which is defined by the congestion zone of 30 Jun/04 Aug 2017 & the 2.618 Fibonacci projection of the decline from 23 Jan 2018 high to 25 Jan 2018 minor low projected from 29 Jan 2018 minor high) (see daily & 4 hour charts).
• The intermediate resistance stands at 12845 (the former range support from 15 Nov 2017 low & close to 38.2% Fibonacci retracement of the on-going decline from 29 Jan 2018 high to today’s current intraday low of 12534) with the key medium-term resistance at 13000 (the pull-back resistance of the former ascending channel support from 24 Jun 2016 & the 50% Fibonacci retracement of the on-going decline from 29 Jan 2018 high to today’s current intraday low of 12534).

Therefore, the Index is likely to see a further potential downside after a potential minor relief rebound above 12430/355 towards 12845 with a maximum limit set at the 13000 key medium-term pivotal resistance. Thereafter, another bearish impulsive downleg may materialise to complete the corrective wave 4/ at the major support of 12900/800.

However, a clearance above 13000 should invalidate the corrective downleg scenario to see a further squeeze up to retest 13275 and even the all-time high zone of 13560/600.

Charts are from City Index Advantage TraderPro  & eSignal