Weekly Technical Outlook on Major Stock Indices 12 Feb to 16 Feb 2018

S&P 500 – Potential recovery above 2540/30

Key Levels (1 to 3 weeks)

Intermediate support: 2585

Pivot (key support): 2540/30

Resistances: 2728/45 & 2877/80

Next supports: 2480 & 2430/10

Medium-term (1 to 3 weeks) Outlook

Last week, the U.S. SP 500 Index (proxy for the S&P 500 futures) had plunged as expected but beyond our medium-term support/target set at 2668. It plummeted straight towards the 2540/30 major support zone (printed a low of 2531 on 06 Feb 218 Asian session). Click here for a recap on our previous weekly technical outlook.

Last week’s fall recorded a decline of 12% (high to low) from its current all-time high seen on 29 Jan 2018 which is the steepest fall since the previous 15% correction from May 2015 to 11 Feb 2016 in terms of percentage. Interestingly, the Index ended last week with several positive technical elements as follow;

• It has formed a daily bullish “Hammer” candlestick pattern after a retest on the major support zone of 2540/30 at the end of last Fri, 09 Feb U.S. session.
• The major support zone of 2540/30 is defined by a confluence of elements. The pull-back support of the former long-term ascending channel resistance from Mar 2009, the ascending channel support from 11 Feb 2016 low & the 38.2% Fibonacci retracement of the up move from 27 Jun 2016 low to 29 Jan 2018 high (see weekly chart).
• Based on the Elliot Wave Principal/fractal analysis, the decline from 29 Jan 2018 high may have met a potential minimum intermediate degree corrective wave (4) target at 2540/30 where the Index may shape a potential bullish reversal to kick start an intermediate degree bullish impulsive wave (5) structure.
• The Index is likely to be in the process of forming an impending minor “Double Bottom” bullish reversal chart configuration with its neckline resistance at 2728 (see 4 hour chart).
• The VIX futures managed to have a weekly close inside the 26.40/28.25 “Fear Zone” where the S&P 500 had followed through with significant bullish reversal in the past (May 2012, Oct 2014, Aug 2015, Feb 2016) post 2011/2012 European sovereign debt crisis (see 3rd chart).
• The narrative for the past 2 weeks of softness seen in the S&P 500 is triggered by a rising 10-year U.S. Treasury yield as it approaches the key 3.00% level where a break above it is likely to trigger a significant increase in cost of funding where the market may not be able to absorb due to an extended period of loose monetary policies since 2009. Last Friday, 09 Feb, it ended with a daily “Doji” candlestick after a retest on Mon, 05 Feb high of 2.86% which suggests indecisiveness of the current bullish force to push up the yield (see 4th chart).     

Therefore as long as the 2540/30 key pivotal support holds, the Index is likely to see a further potential push up to retest the 2728/45 resistance (neckline of the “Double Bottom” & 61.8% Fibonacci retracement of the steep decline from 29 Jan 2018 high to 05 Feb 2018 U.S. session low) and a break above 2445 is likely to reinforce the start of another potential bullish impulsive wave structure to retest current all-time high area of 2877/80 in the first step.

However, failure to hold above 2540/30 should see a further slide to retest the 2480 excess key long-term pivotal support (38.2% Fibonacci retracement of the up move from Feb 2016 low to 29 Jan 2018 & former range resistance from Jul/Sep 2017) and a clear break below it should invalidate the recovery scenario to kick start a multi-month corrective down  move to towards the next support at 2430/10 in the first step (61.8% Fibonacci retracement of the up move from Jun 2016 low to  29 Jan 2018 high & the swing low areas of Mar/Apr 2017). 

Nikkei 225 – Recent plunge stalled at key 20800/600 major support

Key Levels (1 to 3 weeks)

Intermediate support: 21000

Pivot (key support): 20800/600

Resistances: 22800/23000, 24200 & 24540  

Next support: 19300

Medium-term (1 to 3 weeks) Outlook

Last week’s plunge had manged to stall at a key major support zone of 20800/600 (the former major swing high areas of Jun 2015/Mar 2000, 38.2% Fibonacci retracement of the up move from 24 Jun 2016 to 23 Jan 2018 high & the major ascending channel support from 24 Jun 2016 low).

Interestingly, the daily RSI oscillator has formed a bullish divergence signal at an extreme oversold level of 25% (last seen in Feb 2016). These observations suggest that downside momentum of the recent decline from 23 Jan 2018 high has started to abate where a potential recovery is likely to occur.

Therefore, we turn bullish above the 20800/600 key pivotal major support for a potential push up to retest the intermediate resistance at 22800/23000 (the 61.8% Fibonacci retracement of the decline from 23 Jan high to 09 Feb 2018 low & former range top from 09 Nov/18 Dec 2017). A break above 23000 is likely to increase the probability of the recovery phase to retest its recent 20-year high of 24200 in the first step.

On the other hand, failure to hold above 20800/600 should invalidate the recovery process and kick start a multi-month corrective down move towards the next support at 19300 in the first step.

Hang Seng – Mix elements

Key Levels (1 to 3 weeks)

Supports: 28600/100 & 26000/25750

Resistances: 31400 & 33430/530

Medium-term (1 to 3 weeks) Outlook

Last week, the Hong Kong 50 Index (proxy for Hang Seng Index futures) had declined as expected and surpassed beyond the medium-term support/target of 30140 as it printed a low of 29072 in last Fri, 09 Feb U.S. session (a brief violation below the major ascending trendline from 28 Dec 2016 low)

The daily RSI oscillator still has some room left to manoeuvre to the downside before it reaches an extreme oversold level of 20% last seen in Feb 2016 and the Index has also not reached its major support zone of 28600/100 (the former major swing high areas of Apr/May 2015 + 38.2% Fibonacci retracement of the up move from May 2016 low to 29 Jan 2018 high).

Mix elements for now, thus prefer to have a neutral bias between 28600/100 & 31400 (61.8% Fibonacci retracement of the decline from 29 Jan 2018 to last Fri, 09 Feb 2018 low & the minor swing high of 07 Feb 2018). A clearance above 31400 should validate a potential recovery to retest its current all-time high area of 33430/530 in the first step.  

ASX 200 – Tested & rebound from major support zone of 5780/5670

Key Levels (1 to 3 weeks)

Intermediate support: 5780

Pivot (key support): 5670

Resistances: 5990 & 6150

Next support: 5560

Medium-term (1 to 3 weeks) Outlook

Last Fri, 09 Feb, the Australia 200 Index (proxy for the ASX 200 futures) had continued its week-long plunge before it staged a rebound at the end of the U.S. session.

Interestingly, it ended with last Fri, 09 Feb with a daily “Long-legged Doji” candlestick pattern right at its key major support zone of 5780/5670 (major ascending channel support from 10 Feb 2016 low, the medium-term range support from 08 Jun 2017 & a Fibonacci cluster) coupled with a bullish divergence signal seen in the shorter-term 4 hour Stochastic oscillator.

Given such positive signals seen in at the retest of the major support zone of 5780/5670, we turn bullish above the 5670 key major pivotal support for a further potential push up to retest 5990 (upside trigger) and a break above 5990 is likely to reinforce a recovery towards the recent medium-term swing high area of 6150 in the first step.

However, failure to hold above 5670 should invalidate the recovery scenario to kick start a multi-month corrective down move to target the next support at 5560 in the first step.    

DAX – Holding above 11900/800 key major support

Key Levels (1 to 3 weeks)

Intermediate support: 12110

Pivot (key support): 11900/800

Resistances: 12845 & 13560

Next support: 10800

Medium-term (1 to 3 weeks) Outlook

Last week’s plunge seen in the Germany 30 Index (proxy for the DAX futures) had managed to stall right at the key major support/target of 11900/800 as expected.

The daily RSI oscillator has dipped and reversed up from an extreme oversold level of 25% last seen in Jan 2016 which represents an overextended decline.

Therefore as long as the 11900/800 key major pivotal support holds and a break above 12845 is likely to reinforce a potential recovery scenario to retest its current all-time high area of 13560 in the first step.

On the other hand, failure to hold above 11900/800 should invalidate the recovery scenario to open up scope a multi-month corrective down move to test the next support at 10800.

Charts are from City Index Advantage TraderPro  & eSignal