Weekly Technical Outlook on Major Stock Indices 09 Jul to 13 Jul 2018

S&P 500 – A rally of hope in progress

Key Levels (1 to 3 weeks)

Intermediate support: 2755

Pivot (key support): 2738

Resistances: 2790 & 28383

Next support: 2680

Medium-term (1 to 3 weeks) Outlook

The SP 500 Index (proxy for the S&P 500 futures) had continued to inch higher from the 2680 medium-term support since the start of last week and staged a bullish breakout above the upper limit of the neutrality range at 2744 on last Fri, 09 Jul 2018 (the day where the U.S. White House kickstarted its tariffs of 25% on USD34 billion worth of China imports with retaliation measures from China).  Recalled that we had turned neutral in our medium-term (1-3weeks) strategy due to mix elements.

Since its 28 Jun 2018 low of 2691, the Index has recovered by 2.6% despite the on-going trade tensions between U.S. and the rest of the world. From a technical analysis, we are still in favour that we are at the “tail end” of the melt-up phase that started in Feb 2016 where a potential cyclical degree major top is likely to be formed soon before a multi-year corrective down move phase unfolds to retrace the gains from 9-year uptrend in place since Mar 2009 low (Please refer to Q3 2018 Global Markets Outlook presentation slides for details).

From a multi-week perspective, the Index is now undergoing a potential “rally of hope” to end the melt-up phase. Key elements are as follow;

• Since its 03 Apr 2018 low of 2552, the price actions of SP 500 Index has traced a bearish reversal “Ascending Wedge” configuration which indicates a slowdown in upside momentum as the magnitude of “higher highs” formed is lesser that the magnitude of the corresponding “higher lows” (see 4 hour chart).
• One of the leading/outperforming index, the Nasdaq 100 has started to exhibit bullish elements where it staged a rebound from its 02 Apr 2018 low of 6322 has started to evolve into a more positive price action configuration (ascending channel) due to its higher beta/momentum characteristics of its component stocks). The recent recovery after the Jan/Feb 2018 sell-off has only been concentrated into such momentum driven stocks (including the Russell 2000, small-caps) but do not manage to ignite a positive feedback loop into other economic growth sensitive sectors such as Industrials, Financials, Materials. These observations indicate a weak market breadth where the higher beta/momentum driven stocks are the “sole fort” that is holding up the U.S. stock market (refer to the 3rd chart).
• The key medium-term support of the SP Index for this week is set at 2738 which is defined by the former range resistance of 28 Jun/03 Jul 2018 and the 50% Fibonacci retracement of the recent up move from 04 Jul 2018 low to today, 09 Jul current Asian session high of 2772.
• The next medium-term resistance stands at 2838 which is defined by the upper boundary of “Ascending Wedge” and the 0.618 Fibonacci projection of the up move from 02 Apr 2018 low to 13 Jun 2018 high projected from 28 Jun 2018 low.

Therefore, we have a bullish bias in any dips holding above the 2738 key medium-term pivotal support for a potential upleg to target the resistances of 2790 follow by 2838 next.

However, failure to hold at 2738 sees another round of choppy decline to retest the “Ascending Wedge” support at 2690/80.

Nikkei 225 – 22350 remains the key medium-term resistance to watch

Key Levels (1 to 3 weeks)

Pivot (key resistance): 22350

Supports: 21500 & 21000/20800

Next resistance: 23020

Medium-term (1 to 3 weeks) Outlook

The expected mean reversion rebound of the Japan 225 Index (proxy for the Nikkei 225 futures) from the 21600 intermediate support area has met the intermediate resistance/target of 22000 (printed a high of 22104 in today, 09 July Asian session)

Right now, it is now coming close to the 22350 key medium-term pivotal resistance with its daily RSI oscillator back at its corresponding resistance of 50% with the shorter-term Stochastic oscillator that is coming close to an extreme overbought level.

No change, maintain bearish bias as long as the 22350 key medium-term pivotal resistance is not surpassed for another potential downleg to retest last week’s swing low area of 21500. A break below 21500 opens up scope for a further decline towards the 21000/20800 major support zone (major ascending channel support from Jun 2016 low, a Fibonacci retracement/projection cluster & the potential exit target of the “Double Top”).

On the other hand, a clearance above 22340 indicates a failure bearish breakdown for a squeeze up to retest the 23020 range resistance.

Hang Seng – Mean reversion rebound in progress above 28000 major support

Key Levels (1 to 3 weeks)

Intermediate support: 28400

Pivot (key support): 28000

Resistances: 29400 & 30070/260

Next support: 25500

Medium-term (1 to 3 weeks) Outlook

The major support/downside target of 28000 has been met for the Hong Kong 50 Index (proxy for Hang Seng Index futures). Current elements are now advocating for a potential mean reversion rebound with the daily RSI oscillator that is still showing further potential upside before it reaches a corresponding resistance at the 50 level.

Therefore as long as the 28000 pivotal support holds (the swing low areas of 19 Oct/07 Dec 2017 & the primary ascending trendline in place since Feb 2016 low), the Index is likely to shape a potential mean reversion rebound to target the resistances of 29400 and 30070/260 next (pull-back resistance of the former 5-month range support & 61.8% Fibonacci retracement of the on-going decline from 07 Jun 2018 high to 05 Jul 2018 low of 27800).

However, failure to hold at 28000 (a daily close below it) shall trigger the start of a multi-month corrective decline to target the 25500 support in the first step.

ASX 200 – Medium-term uptrend remains intact

Key Levels (1 to 3 weeks)

Intermediate support: 6230

Pivot (key support): 6150

Resistance: 6350/380

Next supports: 5980

Medium-term (1 to 3 weeks) Outlook

The Australia 200 Index (proxy for the ASX 200 futures) had staged the expected bullish breakout from its minor “Symmetrical Triangle” range configuration in place since 26 Jun 2018 high and hit the 6270/80 intermediate resistance/target on last Fri, 06 Jul.

Right now, the shorter-term Stochastic oscillator has just exited from its overbought region and still has room for further potential downside before it reaches its extreme oversold level at 2. Therefore, the Index may see a minor pull-back first towards the intermediate support at 6230 (the pull-back support of the former minor “Symmetrical Triangle resistance”. As long as the 6150 key medium-term pivotal support holds(lower boundary of the medium-term ascending channel from 04 Apr 2018 low), the Index is likely to stage another potential upleg to target the next resistance at 6350/380 (Fibonacci projection cluster & upper boundary of the medium-term ascending channel from 04 Apr 2018).   

However, a break below 6150 negates the bullish tone for a deeper pull-back towards the next support at 5980.

DAX – Coming close to mean reversion target of 12630

Key Levels (1 to 3 weeks)

Supports: 12100 & 11900/800

Resistances: 12630 & 13190

Medium-term (1 to 3 weeks) Outlook

Last week, the Germany 30 Index (proxy for the DAX futures) had managed to hold its 12100 support and shaped a mean reversion rebound to print a high of 12558 on last Fri, 06 Jul.

Right now, it is coming close to the 12630 medium-term range resistance (the former swing low areas of 29/31 May/08 Jun 2018 & the 50% Fibonacci retracement of the recent decline from 15 June 2018 high to 28 Jun 2018 low) coupled with a bearish divergence signal seen n the shorter-term Stochastic oscillator.

Prefer to maintain neutrality stance between 12630 and 12100. Only a break above 12630 opens up scope for a further mean reversion towards the next resistance at 13190. On the flipside, failure to hold at 12100 is likely to see a further slide towards the key major support at 11900/800 (neckline of a multi-month “Head & Shoulders” bearish reversal chart configuration in the making since Jun 2017).

Charts are from City Index Advantage TraderPro & eSignal