Weekly Technical Outlook on Major Stock Indices 15 Jan to 19 Jan 2018

S&P 500 – Potential extension of up move above 2735 suppot

Key Levels (1 to 3 weeks)

Intermediate support: 2766

Pivot (key support): 2735

Resistances: 2820 & 2860/80

Next support: 2668

Medium-term (1 to 3 weeks) Outlook

Last week, the U.S. SP 500 Index (proxy for the S&P 500 futures) had continued its relentless climb with only a dip of 0.8% before it surged above the 2780 medium-term resistance on last Fri, 12 Jan and ended the week with a new all-time record close of 2787.

Despite an extreme overbought reading seen in the daily RSI oscillator where it now has a reading of 87% which is the highest since May 1996, other technical elements are not advocating for a potential 4% to 5% corrective decline at this juncture;

• Based on the Elliot Wave Principal/fractal analysis, the primary degree (multi-month/year) bullish impulsive wave (3) in place since 27 Jun 2016 low is now likely undergoing an extension phase (beyond the 1.618 Fibonacci projection of the wave (1) up move from 11 Feb 2016 low to 20 Apr 2016 high projected from  27 Jun 2016 low) to a potential end targets at 2820 and 2860/80 (Fibonacci projection cluster (see daily chart).
• Sector rotation analysis suggests that leadership has been taken over by the Industrials, Consumer Discretionary, Financials and even the laggard Energy from the Technology sector seen from their respective ETFs relative strength chart with the benchmark S&P 500. These outperforming sectors have a combined weightage of 44% which surpass the Technology sector weighting of 25%. Therefore, the S&P 500 may still have “ammunition” from these outperforming sectors to push up higher (see last chart).
• The key medium-term support now rests at 2735 which is defined by the pull-back support of the former ascending channel resistance bullish breakout from 15 Nov 2017 (depicted in dotted light blue in the 4 hour chart), the minor swing low area of 10 Jan 2018 and the 23.6% Fibonacci retracement of the recent rally from 15 Nov 2017 low to last Fri, 12 Jan 2018 high (see 4 hour chart).

Thus, we flip back to a bullish bias with 2735 as the key medium-term pivotal support to hold any potential pull-back in price action (due to the extreme overbought readings seen in both the daily RSI & 4 hour Stochastic oscillators) for another round of potential extension upleg to target 2820 and above opens up scope for 2860/80 next.

On the other hand, a break below 2735 should invalidate the bullish extension scenario to trigger a multi-week corrective decline towards the next support at 2668 (the former swing high areas of 04/14 Dec 2017 & the lower boundary of the ascending channel from 15 Nov 2017 low) in the first step

Nikkei 225 – 23325 remains the key support to watch

Key Levels (1 to 3 weeks)

Intermediate support: 23550/460

Pivot (key support): 23325

Resistances: 24200 & 24540

Next supports: 22970 & 21990/890

Medium-term (1 to 3 weeks) Outlook

Last week, the Japan 225 Index (proxy for the Nikkei 225 futures) traded sideways above the 23550/460 intermediate support. No change on its key elements, we maintain the bullish bias as long as the 23325 key medium-term pivotal support holds for another potential upleg towards the next resistance at 24200 and above it triggers a further rally to target 24540 resistance next.  

However, failure to hold above 23325 should negate the preferred bullish scenario to see a deeper pull-back to retest the former “triangle range” resistance now turns pull-back support at 22970. Only a clear break below (daily close) 22970 implies a failure bullish breakout to trigger a multi-week corrective down move towards the next support at 21990/890 in the first step.

Hang Seng – 31750 almost met but no clear signs of bullish exhaustion yet

Key Levels (1 to 3 weeks)

Intermediate support: 30990

Pivot (key support): 30600

Resistances: 31750 & 31960

Next supports: 29330

Medium-term (1 to 3 weeks) Outlook

The Hong Kong 50 Index (proxy for Hang Seng Index futures) had rallied as expected and almost met the medium-term resistance/target of 31750 (printed a current intraday high of 31741 on Mon, 15 Jan 2018).

Key elements remain positive except for the risk of a minor pull-back/consolidation below 31750 towards the 30990 intermediate support (lower boundary of the short-term ascending channel from 15 Dec 2017 low-depicted in purple & the 23.6% Fibonacci retracement of the up move from 15 Dec 2017 low to today’s high) reinforced by the 4 hour Stochastic oscillator that has exited its overbought region and still has room for further potential downside before it reaches an extreme oversold level.

Therefore, as long as the tightened key medium-term support at 30600 holds, the Index may see another upleg to target the next resistance at 31960 (Oct 2007 high & Fibonacci projection cluster).

However, failure to hold above 30600 should negate the bullish tone to see a deeper corrective pull-back towards the next support at 29330 (former congestion area of 04 Dec to 19 Dec 2017).

ASX 200 – Bulls need to break above 6109

Key Levels (1 to 3 weeks)

Pivot (key support): 6026

Resistances: 6109 (upside trigger), 6190 & 6240/60

Next support: 5940/10

Medium-term (1 to 3 weeks) Outlook

The Australia 200 Index (proxy for the ASX 200 futures) had inched lower but managed to hold above the 6026 key medium-term pivotal support.

In order to increase the odds of the initial bullish scenario, the Index now needs to break above 6109 (today, 15 Jan Asian session high) to open up scope for a potential upleg to target the next resistances at 6190 follow by 6240/60 next.

On the other hand, failure to hold above 6026 shall invalidate the bullish scenario to trigger a corrective decline phase towards the next support at 5940/10 in the first step.

DAX – Still hold above 13000 key support but bulls need to break above 13350 to increase conviction

Key Levels (1 to 3 weeks)

Intermediate support: 13150

Pivot (key support): 13000

Resistances: 13350 (upside trigger), 13530/560 & 13760

Next support: 12740

Medium-term (1 to 3 weeks) Outlook

The Germany 30 Index (proxy for the DAX futures) had attempted to stage a break down below its 13200 intermediate support area (the former descending range resistance from 07 Nov 2017 high-depicted in dotted brown on the 4 hour chart) in the aftermath of a more hawkish ECB monetary policy minutes released on last Thurs, 11 Jan (the negative knee-jerk reaction on the Index was triggered by a stronger EUR/USD). Interestingly, the Index did not reintegrate below the aforementioned pull-back support and traded sideways throughout last Fri, 12 Jan.

Therefore, we can consider last Thurs price action as a whipsaw around its intermediate support and key technical elements remain unchanged.

We maintain the bullish bias above the 13000 key medium-term pivotal support and added an upside trigger level of 13350 (former minor swing low area of 08/09 Jan 2018) to increase the conviction of another potential upleg towards the next resistances of 13530/560 follow by 13760 next.

On the other hand, failure to hold above 13000 should invalidate the bullish scenario to see another round of choppy decline to retest the major support of 12740 (lower boundary of the ascending channel from 24 Jun 2016 low & the recent swing low of 02 Jan 2018).