Weekly Technical Outlook on Major Stock Indices 11 Dec to 15 Dec 2017

Key Highlights

• U.S. stock market remains on a solid footing with the S&P 500 holding above its key medium-term support at 2604. Despite an on-going under performance seen in the higher beta technology stocks, sector rotation analysis advocates a leadership role in the Consumer Discretionary, Industrials and Financials sectors that can assist the S&P 500 to scale to another potential all-time high.
• Main fundamental catalyst for the U.S. stock market rests on the on-going reconciliation works to settle the different versions of the approved tax reform plan from the Senate and House respectively. Positive developments have occurred that may see a finalised tax reform bill to be sent to the White House as early as Dec 26.
• Over in Asia, the Hong Kong stock market has started to show signs of stabilisation after a 6% decline seen in the benchmark Hang Seng Index from its 21 Nov 2017 high. Watch the 29300 intermediate resistance to trigger a bullish breakout in order to kick start another round of potential bullish impulsive wave sequence.
• In Europe, the DAX remains stuck in a range below the 13220 key medium-term resistance where the bears need to break below 12800 to open up scope for a corrective decline. On Dec 14 (Thurs), ECB may provide the catalyst for a bearish breakdown on the DAX if Mario Draghi starts to paint a more rosy picture on Eurozone economic and inflation growth  where market participants will start to perceive that ECB may taper their current QE programme faster than was outlined previously (Sep 2018).   

S&P 500 – Start of another potential upleg above 2604 support

Key Levels (1 to 3 weeks)

Intermediate support: 2636

Pivot (key support): 2604

Resistances: 2683, 2705 & 2720

Next support: 2565/43

Medium-term (1 to 3 weeks) Outlook

Last week, the U.S. SP 500 Index (proxy for the S&P 500 futures) had traded within the predefined neutrality zone of 2668/83 and 2604 as expected.

Current technical elements have started to turn positive.

• Price action has started to stage a rebound from the lower boundary of a minor ascending channel from 15 Nov 2017 low now acting as a support at 2636 (see 4 hour chart).
• In addition, the daily RSI oscillator has started to inch upwards and still has room to manoeuvre to the upside before it reaches an extreme overbought level of 85% since Mar 2017. These observations suggest that medium-term upside momentum of price action has resurfaced.
• The key medium-term support rests at 2604 which is defined by an ascending trendline from 21 Aug 2017 low (depicted in light blue), the 01 Dec 2017 swing low and close to the 23.6% Fibonacci retracement of the up move from 21 Aug 2017 low to 04 Dec 2017 high (see daily chart).
• The next significant resistances stands at 2683 follow by 2705 which is defined by Fibonacci projection clusters and the upper boundary of the aforementioned minor ascending channel (see 4 hour chart).
• Based on sector rotation analysis, the recent underperformance of the higher beta growth S&P Technology sector that has a 25% weightage in the S&P 500 (the highest for a single sector) has been mitigated by the performance of other sectors such as Industrials, Consumer Discretionary and Financials that have a combined weightage of 37%.  Based on their respective relative strength chart analysis (using ETFs), their ratios are showing signs of outperformance against the benchmark S&P 500 which can support the S&P 500 to scale upwards to print another potential new all-time high (see last chart).

Therefore, we flip back to a bullish bias and as long as the 2604 key medium-term pivotal support holds, the Index may see another bullish impulsive upleg sequence to target the next resistances at 2683 follow by 2705 next in the first step.

On the other hand, failure to hold above 2604 shall invalidate the bullish scenario to trigger a corrective decline towards the next support at the 2565/43 zone.

Nikkei 225 – Stuck within a range

Key Levels (1 to 3 weeks)

Resistances: 23010, 23420 & 24200/540

Supports: 21830 & 21230/200

Medium-term (1 to 3 weeks) Outlook

The Japan 225 Index (proxy for the Nikkei 225 futures) had tested and remained below the 23010 key medium-term resistance but it did not managed to stage a further breakdown below the 21830 downside trigger level (the 15 Nov 2017 swing low area).

Elements have started to turn mix as the Index has started to evolve in a sideways “Symmetrical Triangle” range configuration. In addition, the USD/JPY which has a direct correlation with the Index is still hovering below its major resistance of 114.00.

Therefore, we have turned neutral for now between 23010 and 21830. A clear break above 23010 shall validate a further potential bullish impulsive upleg sequence to target the next resistance at 24200/540.

On the downside, the Index needs to see a further decline below 21830 in order to trigger a corrective downleg towards the 21230/200 support.

Hang Seng – Recent slide has started to stabilise at the 28000 major support

Key Levels (1 to 3 weeks)

Pivot (key support): 28000

Resistances: 29300 (upside trigger), 30200 & 30700/800

Next support: 27000

Medium-term (1 to 3 weeks) Outlook

The recent 6.7% decline seen in the Hong Kong 50 Index (proxy for Hang Seng Index futures) from its 21 Nov 2017 high has stalled right at the 28000 major support (the lower boundary of the ascending channel from 28 Dec 2016). Elements have started to turn positive;

• The daily RSI oscillator has staged a rebound from its significant corresponding support at the 40% level where previous rebound seen in the past since Mar 2017 has led to a significant up move in price action of the Index. This observation indicates a revival of medium-term upside momentum.
• The next significant medium-term resistance stands at 30700/800 which is defined by a Fibonacci projection cluster and the upper boundary of the major ascending channel from 28 Dec 2016 low (see daily & 4 hour charts).
• Based on intermarket analysis, the recent slide of the Hong Kong 50 Index from its  21 Nov 2017 high has moved in a similar “lock-step” with the China A50 Index (a benchmark China A shares index). Interestingly, the recent slide seen in the China A50 has managed to stage a rebound right above its 12800 key medium-term support coupled with a positive momentum reading seen in its daily RSI oscillator. Therefore, a “stabilised” ChinaA50 is likely to lead to a positive outcome for the Hong Kong 50 Index (see last chart).

Therefore, we maintain the bullish bias above the 28000 major pivotal support with 29300 as the upside trigger level (minor descending trendline from 21 Nov 2017 high depicted in pink in the 4 hour chart). An hourly close above 29300 shall increase the odds of another bullish impulsive wave sequence to retest the recent 21 Nov 2017 swing high of 30200 before targeting the next resistance at 30700/800.

However, failure to hold above 28000 is likely to invalidate the recovery scenario for an extension of the corrective decline towards the next support at 27000.

ASX 200 – Still below 6013/33 resistance with mix elements

Key Levels (1 to 3 weeks)

Resistances: 6013/33, 6065 & 6130

Supports: 5940, 5860 & 5800

Medium-term (1 to 3 weeks) Outlook

Last week, the Australia 200 Index (proxy for the ASX 200 futures) has staged another probe on the 6013/33 key medium-term pivotal resistance before it retreated on Fri, 08 Dec 2017 in the U.S. session.

Technical elements have turned mix with the price action of Index that has started to evolve within a “Symmetrical Triangle” range configuration in place since 09 Nov 2017 high. Therefore, we turn neutral now between 6013/33 and 5940. A clearance above 6033 shall turn tide to the bulls to open up scope for another potential bullish upleg to target the next resistances at 6065 follow by 6130.

On the downside, the bears need to break below 5940 to trigger a potential corrective decline towards the next support at 5860.

DAX – Bears need to take out 12800 support

Key Levels (1 to 3 weeks)

Pivot (key resistance): 13220

Supports: 12800 (downside trigger), 12720/700 & 12520/500

Next resistance: 13530/560

Medium-term (1 to 3 weeks) Outlook

The Germany 30 Index (proxy for the DAX futures) had staged another test on the 13220 key medium-term resistance on last Fri, 08 Dec 2017 (before the release of the U.S. NFP data) and retreated later.

No major changes on its technical elements. We maintain our bearish bias below the 13220 key medium-term pivotal resistance and a break below 12800 is required to increase the odds of a multi-week corrective decline within its major uptrend to target the next supports at 12720/700 and even 12520/500 (Fibonacci cluster & the key major ascending channel support from 24 Jun 2016 low) before another potential bullish impulsive wave sequence materialises).

On the other hand, a clearance above 13220 is likely to invalidate the corrective decline scenario to see a squeeze up to retest 07 Nov 2017 swing high area of 13530/560.