Weekly Technical Outlook on Major Stock Indices 13 Aug to 17 Aug 2018

S&P 500 – A potential cyclical top in the making

Key Levels (1 to 3 weeks)

Intermediate resistance: 2833

Pivot (key resistance): 2864

Supports: 2790, 2740 & 2700

Next resistance: 2880 (upside trigger) & 2940

Medium-term (1 to 3 weeks) Outlook

The SP 500 Index (proxy for the S&P 500 futures) had continued to evolve within our bearish bias expectations as its initial up move seen at the start of last week has managed to stall right at the bearish “Ascending Wedge” resistance/upper boundary at 2864. Thereafter, it staged a “mini” bearish reversal of 1.3% to print a low of 2825 in last Fri, 10 Aug U.S. session. Click here for a recap on our previous weekly outlook.

Key elements remain negative as follow;

• Last week, the daily RSI oscillator (a momentum indicator) has started to flash a bearish divergence signal on 07 Aug and it is now testing a significant corresponding support at the 50 level in place since 06 Feb 2018 low. The low of 06 Feb 2018 is the recent medium-term swing low which led to a 13% up move seen in the Index after its prior significant decline of 12% from its current all-time high level of 2877 printed on 29 Jan 2018.  These observations suggest that the medium-term momentum of price action has started to turn negative.
• Relative strength analysis seen in the S&P 500 sectors (using the respective ETFs) has continued to show weakness in the overall health of the general market. The recent push up seen in the S&P 500 is only being supported by the Technology sector (XLK) and the other outperforming sector, Consumer Discretionary (XLV) has started to show weakness. Other higher weightage risk sensitive sectors such as Industrials (XLI) and Financials (XLF) have continued to underperform (see 3rd chart).
• The VIX futures (a gauge of implied volatility on the S&P 500) has tested and inched up from its upper limit “complacency zone” of 12.80/10.10 where in the past has led to significant decline of 10%/20% of seen in the S&P 500 since Aug 2014 (see 4th chart).

Therefore, we maintain the bearish bias and adjusted the key medium-term pivotal resistance to 2864 (the upper boundary of the “Ascending Wedge” that was tested and reversed down) for a further potential downleg to test 2790 before targeting 2740 (the former minor swing high areas of 27/29 Jun 2018 & 38.2% Fibonacci retracement of the up move from 02 Apr 2018 low to last week high of 2864).

However, a break above 2864 will see a retest on the recent all-time high area of 2877/80 (Fibonacci projection cluster) and only a daily close above 2880 invalidates the bearish scenario for another bullish impulsive upleg scenario to target the next resistance at 2940 (the upper boundary of the primary ascending channel from Feb 2016).

Nikkei 225 – A potential minor rebound before another downleg materialises

Key Levels (1 to 3 weeks)

Intermediate resistance: 22160

Pivot (key resistance): 22400

Supports: 21750, 21460 & 21100

Next resistances: 22840 & 23020

Medium-term (1 to 3 weeks) Outlook

The Japan 225 Index (proxy for the Nikkei 225 futures) has managed to stage the expected minor bearish breakdown below 22320 (the former minor range support from 23 Jul/02 Aug 2018) and recorded a 2% decline to print a current intraday low of 21847 in today, 13 Aug Asian session.

Overall, the medium-term (1 to 3 weeks) technical elements remain bearish. However, from a short-term perspective (1 to 3 days), the current intraday low of 21847 is coming close to a minor/intermediate support of 21750 (minor swing low of 11 Jul 2018 & 1.618 Fibonacci projection from the recent down move from 18 Jul 2018 minor high of 22954 to 23 Jul 2018 low of 22343 projected from 08 Aug 2018 high of 22802) coupled with the 4 hour Stochastic oscillator that is coming close to an extreme oversold level of 3.

Therefore, the Index may see a minor rebound above 21750 towards 22160 with a maximum limit set at the adjusted key medium-term pivotal resistance at 22400 (former range support) before another potential downleg materialise to target the 21460 support in the first step (the swing low of 05 Jul 2018 & the lower boundary of the major ascending channel in place since Jun 2016 low).

However, a clearance above 22400 negates the bearish tone for a squeeze up to retest its medium-term range resistance zone of 22840/23020 in place since 22 May 2018.

Hang Seng – Still at risk of a major bearish breakdown

Key Levels (1 to 3 weeks)

Intermediate resistance: 28390

Pivot (key resistance): 29100

Supports: 27500, 27000 & 26000/25500

Next resistance: 30100

Medium-term (1 to 3 weeks) Outlook

The Hong Kong 50 Index (proxy for Hang Seng Index futures) had printed a low of 27485 on 02 Aug 2018 before it staged a reintegration back above the 28000 major support last week (the primary ascending support in place since Feb 2016 low of 18056).

Despite last week’s rebound seen in price action of the Index, it still remains below the predefined key medium-term pivotal resistance of 29100 (the former range support of the 5-month sideways configuration since 09 Feb 2018) and the daily RSI oscillator has staged a retest and retreat from its corresponding significant resistance at the 50 level. Overall, medium-term technical elements remain negative.

From a shorter-term perspective (1 to 3 days), the current slide from its 09 Aug 2018 minor high of 28749 is “overstretched” as indicated by the 4 hour Stochastic oscillator which is coming close to an extreme oversold level of 2. Therefore, the Index may see a minor mean reversion rebound at this juncture towards the intermediate resistance of 28390 (former minor swing high of 7 Aug 2018 & 61.8% Fibonacci retracement of the recent slide from 09 Aug 2018 high to today, 13 Aug Asian session current intraday low of 27815) with the key medium-term pivotal resistance remains at 29100 before another downleg to retest 27500. A daily close below 27500 is likely to trigger the start of a potential multi-month downleg to target the next supports at 27000 and 26000/25500 in the first step (the swing low of 6 Jul 2017 & a Fibonacci retracement/projection cluster).

On the other hand, a clearance above 29100 invalidates the bearish tone for an extension of the mean reversion rebound to test the next intermediate resistance at 30100.

ASX 200 – 6200 is the key support to watch

Key Levels (1 to 3 weeks)

Supports: 6200 & 5980

Resistances: 6350/80 & 6455/490

Medium-term (1 to 3 weeks) Outlook

The Australia 200 Index (proxy for the ASX 200 futures) has continued to trade sideways. No change, prefer to maintain neutrality stance between 6200 and 6350/80.

A break (daily close below) 6200 validates the start of a potential multi-week corrective down move to target the next support at 5980 in the first step (swing low area of 29 May 2018 & the lower boundary of the major ascending channel in place since 10 Feb 2016 low).

DAX – En route towards last line of defence at 11900/800

Key Levels (1 to 3 weeks)

Intermediate resistance: 12420

Pivot (key resistance): 12540

Supports: 12100 & 11900/800

Next resistance: 12890

Medium-term (1 to 3 weeks) Outlook

Last week, the Germany 30 Index (proxy for the DAX futures) had continued to drop lower as expected and staged a bearish breakdown below the 12540 neckline support of minor “Head & Shoulders” bearish reversal chart in place since 18 Jul 2018.

Right now, it is attempting to break below the 12400 major/primary ascending trendline support from Feb 2016 low. Key medium-term technical elements remain negative. No change, we maintain the bearish bias in any potential minor rebound (given that the shorter-term 4 hour Stochastic oscillator is now coming close to an extreme oversold level of 3) below the adjusted key medium-term pivotal resistance of 12540 for another potential downleg to target the 12100 support in the first step (swing low areas of 27/28 Jun 2018 & the exit potential of the minor “Head & Shoulders” bearish breakdown) follow by 11900/800 next (the neckline support of the major Head & Shoulders).

However, a reintegration above 12540 put the bears on hold for another round of choppy up move to retest the 12890 swing high area of 27 Jul 2018.

Charts are from City Index Advantage TraderPro & eSignal