Weekly Technical Outlook on Major Stock Indices 10 Sep to 14 Sep 2018

S&P 500 – A potential major topping process in progress

Key Levels (1 to 3 weeks)

Intermediate resistance:2897/910

Pivot (key resistance): 2940

Supports: 2860 & 2790

Next resistance: 2990/3000

Medium-term (1 to 3 weeks) Outlook

The SP 500 Index (proxy for the S&P 500 futures) continued to be the best performing major stock index as it surged upwards to print another record all-time high of 2916 on 29 Aug 2018.

The current outperformance of the SP 500 Index versus the rest of the world occurred despite the on-going trade tension between U.S. and China as well as the significant sell-off seen in several emerging markets’ currencies (Turkey, Argentina, Brazil, South Africa & Indonesia).

From a technical analysis perspective, we are still having a view that the SP 500 Index is in a process of forming a potential major cyclical top below the 2940 key long-term pivotal resistance as per highlighted in the Q3 2018 Global Markets Outlook.

These are the key medium-term (1 to 3 weeks) technical elements to take note;

• The daily RSI oscillator (a momentum indicator) has started to decline and it is now testing a significant corresponding support at the 50% (an ascending trendline that has managed to keep prior upside momentum intact since 23 Mar 2018). The 50% support of the RSI is likely to be in conjunction with the price action support of 2860 of the Index (refer to 1st & 2nd charts).  
• From sectors rotation analysis, the performance of the S&P 500 since its bullish breakout from its 3-month range configuration on 12 Jul 2018 has been led by only two “risk on” sensitive sectors; Technology (XLK) & Consumer Discretionary (XLY) as indicated by the relative strength analysis on the S&P 500 via the respective sectors ETFs. The other “risk on” sectors with a combined weightage of 31.95%; Industrials (XLI), Financials (XLF), Materials (XLB) & Energy (XLE) have continued to show weakness in terms of relative strength against the S&P 500 (refer to 3rd & 4th charts)
• In contrast, defensive sectors such as Consumer Staples (XLP), Utilities (XLU) & Healthcare (XLV) have continued to outperform the S&P 500 since mid Aug 2018. These observations are typically seen at major topping process (refer to 3rd & 4th charts).
• In the shorter-term (1 to 3 days), the recent slide from its all-time high level of 2916 has reached an oversold condition as indicated by the bullish divergence signal seem in the 4 hour Stochastic oscillator where it may see a minor rebound towards the 2897/910 intermediate resistance; the former minor swing low of 30 Aug 2018 & the upper limit/resistance of the bearish Ascending Wedge (in dotted pink as seen in the daily chart of the S&P 500) that has been reintegrated on 04 Sep 2018.

Therefore, we maintain the bearish bias with 2940 as the key pivotal resistance and a break below 2860 may see a further potential multi-week down move to target the next support at 2790.

On the other hand, a clearance above 2940 shall see an extension of the blow off move to target the next resistance at 2990/3000 (Fibonacci projection cluster & psychological).

Nikkei 225 – Watch the 23020 range resistance

Key Levels (1 to 3 weeks)

Intermediate resistance: 22560/670

Pivot (key resistance): 23020

Supports: 21850 (trigger) & 21460

Next resistance: 24200/540

Medium-term (1 to 3 weeks) Outlook

The recent push up seen in the Japan 225 Index (proxy for the Nikkei 225 futures) had managed to stall at the medium-term range resistance of 23020 in place since 21 May 2018) before it staged a decline of 3.8% to print a low of 22158 on 07 Sep 2018.

No change, we are maintaining the bearish bias where the Index may see a minor rebound first towards the intermediate resistance of 22560/670 given that the 4 hour Stochastic oscillator has traced out a bullish divergence signal (short-term oversold condition in price action after its recent slide) before another potential down move occurs to retest the crucial 21850 level (the minor swing low area of 13/15 Aug 2018 & the major ascending channel support from Jun 2016 low). A daily close below 21850 is likely to pave the way for the start of a potential multi-month corrective decline. The next support to watch from a multi-week (1-3 weeks) perspective will be at 21460.

However, a clearance above the 23020 medium-term pivotal resistance is likely to negate the bearish tone for a squeezed up to retest the 24200/540 swing high area formed on 17/24 Jan 2018, a 26-year high since Oct 1991.

Hang Seng – Downtrend remains intact

Key Levels (1 to 3 weeks)

Intermediate resistance: 27260/580

Pivot (key resistance): 28000

Support: 25640/500

Next resistances: 29100 & 30100

Medium-term (1 to 3 weeks) Outlook

The Hong Kong 50 Index (proxy for Hang Seng Index futures) had continued to inch downwards as expected and met the intermediate support/target at 26790 (printed a low of 26630 on last Fri, 07 Sep).

No major changes on its key technical element. We maintain the bearish bias below an adjusted key medium-term pivotal resistance now at 28000 (the pull-back resistance of the former major ascending support from Feb 2016 low & the upper boundary of the medium-term descending channel from 07 Jun 2018) for a further potential down move to target the next support at 25640/500 (lower boundary of the medium-term descending channel & Fibonacci projection cluster).

On the other hand, a clearance above 28000 negates the preferred bearish scenario for a push up to retest the 29100/30100 range resistance in place since 26 Jul 2018.

ASX 200 – Bearish breakdown below 6250/230

Key Levels (1 to 3 weeks)

Intermediate resistance: 6200

Pivot (key resistance): 6250

Support: 5980

Next resistance: 6350/80

Medium-term (1 to 3 weeks) Outlook

The Australia 200 Index (proxy for the ASX 200 futures) had staged a bearish breakdown below the lower limit of the neutrality range at 6230 and the former “Expanding Wedge” support from 25 Jun 2018 low.

A potential multi-week down move has been validated, thus we turn bearish below the 6250 key medium-term pivotal resistance (the pull-back resistance of the former “Expanding Wedge” range support & 50% Fibonacci retracement of the recent decline from 6379 high of 30 Aug to 07 Sep low of 6099) for another potential down move to target the major support at 5980 (ascending channel support from 10 Feb 2016 low).

However, a clearance above 6250 negates the bearish tone for a squeeze up to retest 6350/80.

DAX – Vulnerable for a potential major bearish breakdown

Key Levels (1 to 3 weeks)

Intermediate resistance: 12125

Pivot (key resistance): 12540

Supports: 11800 (downside trigger), 11550 & 11400

Next resistance: 12890

Medium-term (1 to 3 weeks) Outlook

The Germany 30 Index (proxy for the DAX futures) had continued to decline as expected since the bearish breakdown below its former major/primary ascending trendline from Feb 2016 low now acting as a pull-back resistance at 12540.

Right now, the Index is just hovering right above the 11800 neckline support of an impending major bearish reversal “Head & Shoulders” configuration in place since 20 Jun 2017 (refer to daily chart).

We maintain the bearish bias in any bounces below the 12540 key medium-term pivotal resistance (also the upper boundary of the medium-term descending channel in place since 14 Jun 2018) and a daily close below 11800 is likely to add impetus for a potential significant multi-month corrective down move with medium-term (multi-week) supports coming in at 11550 and 11400 in the first step.

On the flipside, a clearance above 12540 negates the bearish tone for another round of choppy movement to retest the 12890 swing high area of 27 Jul 2018.

Charts are from City Index Advantage TraderPro & eSignal