Weekly Technical Outlook on Major Stock Indices 08 Oct to 12 Oct 2018

S&P 500 – Toppish, further potential downside, watch 2860 trigger level

Key Levels (1 to 3 weeks)

Intermediate resistance: 2912

Pivot (key resistance): 2940

Supports: 2860 (trigger) & 2790/80

Next resistance: 3000/3010

Medium-term (1 to 3 weeks) Outlook

The SP 500 Index (proxy for the S&P 500 futures) has staged another attempt (the 3^rd) to challenge the 2940 key long-term pivotal resistance on 03 Oct 2018 before it staged the expected bearish reversal to print a low of 2869 on last Fri, 05 Oct.  Click here for a recap of our previous weekly technical outlook.  Key technical elements remain negative with new highlights as follow:

• The daily RSI oscillator has staged a bearish breakdown below its significant corresponding support at the 50 level. This observation suggests that medium-term momentum has reversed to the downside, a potential leading bearish presignal to indicate a break below the corresponding price level support of 2860.
• The long-term weekly chart of the ratio of U.S. Treasury bonds (1 to 3 years) and Junk bonds as represented by its respective ETFs (SHY & JNK) has started to exhibit a potential bullish breakout scenario which indicates that the risk of further widening of U.S. credit spreads that tends to be have a negative impact on the S&P 500  (refer to the 4th chart).
• The recent recovery/rally of the S&P 500 from the earlier sell-off seen in Jan/Feb 2018 has been led by high-beta stocks as represented by the ratio of high beta stocks and low volatility stocks ETFs (SPHB versus SPLV). Right now, the outperformance of the high beta stocks has started to abate as the ratio of SPHB/SPLV is now challenging its major/primary support in place since Feb 2016 (refer to the 5th change).

Therefore, no change, we maintain the bearish bias below the 2940 key long-term pivotal resistance and a break with a daily close below 2860 is likely to reinforce a potential multi-week decline to target the next support at 2790/80 (the former resistance of the 3-month range configuration from 12 Mar 2018 & 61.8% Fibonacci retracement of the up move from 28 Jun 2018 low of 2691 to its current all-time high of 2941 printed on 21 Sep 2018). 

On the flipside, a clearance above 2940 shall see an extension of the blow off move to target the next resistance at 3000/3010 (Fibonacci projection cluster & psychological).

Nikkei 225 – Failure bullish breakout, watch the 23000 range support

Key Levels (1 to 3 weeks)

Resistances: 24500, 24880 & 25500

Supports: 23000, 22240 & 21850

Medium-term (1 to 3 weeks) Outlook

Last week, the Japan 225 Index (proxy for the Nikkei 225 futures) reintegrated below the prior medium-term swing high of 24200 seen in 23 Jan 2018 (also a 26-year high since Oct 1991) after it printed a 24478 intraday high on 01 Oct 2018.

Thus, its recent price action has represented a failure bullish breakout scenario with the risk of shaping a further potential decline to test the medium-term range support of 23000 (the former range resistance from May/Sep 2018). A daily close below 23000 is likely validate a potential bearish implusive down move to target the next supports at 22240 and 21850 (the primary ascending channel support from Jun 2016 low) in the first step.

On the flipside, a clearance above 24500 sees the continuation of the up move to target the next resistances at 24880 followed by 25500 next.

Hang Seng – No signs of bearish exhaustion, further potential downside

Key Levels (1 to 3 weeks)

Intermediate resistance: 26800

Pivot (key resistance): 27400

Supports: 26100, 25640/500 & 24900/740

Next resistance: 28000

Medium-term (1 to 3 weeks) Outlook

Last week, the Hong Kong 50 Index (proxy for Hang Seng Index futures) had tumbled as expected and broke below the 27400 downside trigger which further reinforced our preferred medium-term (multi-week) bearish scenario.  

Right now, it has continued to inch downwards to print a current intraday low of 26183 in today, 08 Oct Asian session that shrugged off the latest round of deleveraging polices enacted by China central bank (PBOC) that cut reserve requirement ratio of Chinese banks by 1% (the 4^th cut in 2018) over the weekend to 14.5%/12.5%.

Overall technical elements remain bearish, except in the shorter-term the 4 hour Stochastic oscillator is now hovering just above an extreme oversold level which highlights the risk of a short-term rebound at the 26100 support (recent swing low area of 11 Sep 2018) where the Index may stage a short-term (1 to 3 days) corrective rebound towards the intermediate resistance at 26800 before another round of dowleg materialises.

Therefore, as long as the tightened key medium-term resistance at 27400 is not surpassed (the former swing low area of 24 Sep 2018 & 61.8% Fibonacci retracement of the recent down move from 26 Sep 2018 high to today, 08 Oct current intraday low of 26183), the Index is likely to shape another potential down move to target the next supports at 25640/500 follow by 24900/740 next ((Fibonacci projection cluster, lower boundary of the medium-term descending channel from 07 Jun 2018 high & former major swing high areas of Nov 2010/Sep 2014).

On the flipside, a clearance above 27400 negates the bearish tone for a retest on 28000 (also the pull-back resistance of the former major ascending support from Feb 2016 low).

ASX 200 – “Bearish flag” breakdown, further potential downside ahead

Key Levels (1 to 3 weeks)

Intermediate resistance: 6120

Pivot (key resistance): 6190

Supports: 5980 & 5950

Next resistance: 6250

Medium-term (1 to 3 weeks) Outlook

The Australia 200 Index (proxy for the ASX 200 futures) has staged the expected breakdown from the “bearish flag” ascending range configuration in place since 07 Sep 2018 and met the support/downside target of 6100.

Key technical elements remain negative except for an extreme oversold reading seen in the shorter-term 4 hour Stochastic oscillator where the Index now faces the risk of a minor (1 to 3 days) of corrective rebound to retest the intermediate resistance at 6120 before another potential impulsive downleg materialises.

Therefore as long as the tightened key medium-term pivotal resistance at 6190 holds (the pull-back resistance of the former support of the “bearish flag” & upper boundary of the medium-term descending channel from 29 Aug 2018 high) for a further potential decline to target the next supports at 5980 follow by 5950 (major ascending channel support from 10 Feb 2016 low, lower boundary of the aforementioned descending channel & Fibonacci retracement/projection cluster).

On the flipside, a clearance above 6190 negates the bearish tone for a squeeze up to retest 6250     (the pull-back resistance of the former “Expanding Wedge” range support).

DAX – Watch the “last line of defence” at 11800

Key Levels (1 to 3 weeks)

Intermediate resistance: 12200

Pivot (key resistance): 12350

Supports: 11800, 11550 & 11400

Next resistance: 12540

Medium-term (1 to 3 weeks) Outlook

Last week, the Germany 30 Index (proxy for the DAX futures) has staged the expected bearish breakdown from its former intermediate support at 12125 (the minor ascending trendline from 11 Sep 2018 low.

No major changes on its key technical elements as the Index continues to hover within a medium-term descending channel in place since 14 Jun 2018 high of 13186. We maintain the bearish bias in any bounces below a tightened key medium-term pivotal resistance now at 12350 (the upper boundary of the medium-term descending channel & 76.4% Fibonacci retracement of the on-going slide from 27 Sep 2018 high to current, 08 Oct intraday low of 11998) for another round of potential decline to target the key 11800 neckline support of the impending major “Head & Shoulders” bearish reversal configuration in place since 20 Jun 2017. A decline close below 11800 shall trigger a potential multi-month impulsive down move with next medium-term supports coming in at 11550/11400.

On the flipside, a clearance above 12350 put the bears on hold for a squeeze up to retest 12540 (pull-back resistance of the former primary ascending trendline support from Feb 2016 low

Charts are from City Index Advantage TraderPro & eSignal