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

S&P 500 – A looming corrective rebound cannot be rule out

Key Levels (1 to 3 weeks)

Intermediate support: 2700/690

Pivot (key support): 2674 

Resistances: 2797 & 2850/60

Next supports: 2634 & 2612

Medium-term (1 to 3 weeks) Outlook

Last week, the SP 500 Index (proxy for the S&P 500 futures) had tumbled as expected by 6.4% and met our medium-term to print a low of 2708 as expected from the 2940 key long-term pivotal resistance after the 3^rd attempt to challenge it on 31 Oct 2018. Last Wed, 10 Oct intraday decline was the steepest since 08 Feb 2018 and it was led by one of the key S&P 500 technology sector, represented by its ETF (XLK). This is a very crucial technical element as the melt-up phase that started in Feb 2016 for this aging cyclical bull market since Mar 2009 is being supported primary the outperformance of the higher beta Technology sector. Last week’s weakness seen in the Technology sector has indicated that the “last line of defence” for the broader market is on a “shaking ground” Click here for a recap of our previous weekly technical outlook.

Despite last week’s steep losses, there are two key technical elements that do not justify for a major bottoming process at this juncture;

• The VIX futures has rebounded but has not reached its “fear zone” of 26.40/28.25 in place since May 2012 that has led to a significant capitulation of the bears in the past; Feb/Mar 2018, Feb 2016, Aug 2015 and Oct 2014 (refer to the 3rd chart).
• The two key S&P sectors; Technology and Consumer Discretionary with a significant combined weightage 30.8% of that has led the broader market, S&P 500 since its recent bullish breakout from a 3-month range configuration since Mar 2018 have started to underperform the S&P 500 as seen on its relative strength (RS) chart analysis plotted on its respective sector ETFs; Technology (XLK) and Consumer Discretionary (XLY) (refer to the 4th chart).

From a medium-term (1-3 weeks) perspective, the Index is now fast approaching a significant medium-term support zone of 2700/2674 which is defined by a confluence of elements; the pull-back support of the former primary/long-term ascending channel resistance from Mar 2009 (in dotted blue on the daily chart), medium-term swing low areas of 29 May/28 Jun 2018 and Fibonacci retracement/projection cluster).

Coupled with Elliot Wave/fractal analysis (see 4 hour chart) with an extreme oversold level of 25 seen on a daily RSI oscillator, we cannot rule out a potential multiweek corrective rebound to retrace the on-going intermediate impulsive down move in place since 03 Oct 2018 high.

Therefore, after a potential “last push” down towards 2700/690 max 2674 key medium-term pivotal support, the Index may start to shape a multi-week corrective rebound to retest 2797 and above opens up scope for a further potential squeeze up towards the next intermediate resistance of 2850/60 (the pull-back resistance of the former ascending trendline support from 02 Apr 2018 low, former medium-term swing high areas of 27/29 Jan 2018 & 61% Fibonacci retracement of the on-going down move from 03 Oct 2018 high to 12 Oct 2018 low of 2708).

On the other hand, failure to hold 2674 sees an extension of the impulsive down move to target the next supports at 2634 and 2612 (swing low areas of 25 Apr/03 May 2018).

Nikkei 225 – Potential corrective rebound above 21850/600 support

Key Levels (1 to 3 weeks)

Intermediate support: 21850

Pivot (key support): 21600

Resistances: 22350, 22750 & 23000

Next supports: 20820 & 20550/330

Medium-term (1 to 3 weeks) Outlook

Our earlier bearish prognosis on the Japan 225 Index (proxy for the Nikkei 225 futures) came into fruition after we warned on the failure bullish breakout above the prior 24200 medium-term swing high area (also a 26-year high since Oct 1991). It tumbled and broke below the 23000 former range support that was broken out four weeks ago on 14 Sep 2018. Right now, it is fast approaching our medium-term support/target of 21850 (the major ascending channel support from Jun 2016 low.

There are several key elements to indicate that the on-going medium-term down move from its 01 Oct 2018 high is being “overstretched” and the Index now faces the risk of a countertrend rebound;

• Last Thurs, 11 Oct bearish break below 23000 has started to trace out an impending bullish “Descending Wedge” configuration with the upper boundary acting as a resistance now at 22350 (see 4 hour chart).
• The daily RSI oscillator is now coming close to an extreme oversold level of 20 coupled with an extreme oversold reading seen in the shorter-term 4-hour Stochastic oscillator.

Therefore as long as the 21600 key medium-term pivotal support holds and a break above the 22350 intermediate resistance, the Index may shape a corrective rebound to retest the next resistances at 22750 and 23000 (38.2% Fibonacci retracement of the on-going down move from 01 Oct 2018 high to today, 15 Oct current intraday low of 22033 & pull-back resistance of the former ascending channel support from 23 Mar 2018 low).

On the other hand, failure to hold at 21600 opens up scope for an extension of the impulsive down move to target 20820 and even 20550/330 next (the medium-term swing low areas of 09 Feb/23 Mar 2018 & Fibonacci projection/retracement cluster).

Hang Seng – Approaching 24740/360 support where a potential corrective rebound looms

Key Levels (1 to 3 weeks)

Intermediate support: 24740

Pivot (key support): 24360

Resistances: 26100 & 27000/260

Next support: 23450/300

Medium-term (1 to 3 weeks) Outlook

The Hong Kong 50 Index (proxy for Hang Seng Index futures) has continued to decline as expected and right now it is now approaching the medium-term support/target of 24900/740.

The Index is now exhibiting several elements that highlight the risk of multi-week corrective rebound to retrace its on-going impulsive down move in place since 07 Jun 2018 high of 31550 as both the daily RSI and short-term 4-hour Stochastic oscillators are approaching their respective extreme oversold levels.

Therefore, as long as the 24360 key medium-term pivotal support holds (Fibonacci projection cluster), the Index may shape a potential corrective rebound to target the resistances of 26100 and 27000/260 (the upper boundary of the medium-term descending channel since 07 Jun 2018 & Fibonacci retracement cluster).

On the other hand, a break below 24360 sees an extension of the impulsive down move towards the next support at 23450/300 (swing low area of 09 Mar 2017 & 76.4% Fibonacci retracement of almost 1-year of up move from Nov 2016 low to current all-time high printed on 28 Jan 2018). 

ASX 200 – Overstretched decline, risk of corrective rebound above 5750/5700 support

Key Levels (1 to 3 weeks)

Intermediate support: 5750

Pivot (key support): 5700

Resistances: 5900 & 5950/80

Next support: 5635

Medium-term (1 to 3 weeks) Outlook

The Australia 200 Index (proxy for the ASX 200 futures) had declined as expected since its recent “bearish flag” breakdown on 02 Oct 2018 and plummeted below our medium-term support/target of 5950 to print a low of 5747 on last Thurs, 11 Oct.

Right now, Elliot Wave/fractal analysis coupled with extreme oversold readings seen in the daily RSI and 4-hour Stochastic oscillators suggest that the current down move from 28 Sep 2018 high (prior the “bearish flag” breakdown is overstretched where the risk of a multi-week corrective rebound increases.

Therefore, as long as the 5700 key medium-term pivotal support holds, the Index may shape the aforementioned potential corrective rebound to target the intermediate resistances of 5900 and 5950/80 (the former swing low area of 29 May 2018 & 50% Fibonacci retracement of the decline from 28 Sep 2018 high to 11 Oct 2018 low).

On the other hand, failure to hold at 5700 sees an extension of the impulsive down move towards to test the next support at 5635 (medium-term swing low areas of 08 Jun/21 Sep 2017) in the first step.

DAX – Mix elements, watch the range resistance at 11800

Key Levels (1 to 3 weeks)

Resistances: 11800, 12225 & 12460

Supports: 11300 & 10800/700

Medium-term (1 to 3 weeks) Outlook

The Germany 30 Index (proxy for the DAX futures) had tumbled as expected after its bearish breakdown from its major bearish reversal “Head & Shoulders” configuration and met the medium-term support/target of 11400 (printed a low of 11396 on 11 Oct 2018).

Right now, the Index is exhibiting mix elements, thus we turn neutral between 11300 and 11800. A clearance with a daily close above 11800 opens up scope for a potential corrective rebound to target the intermediate resistances at 12225 and 12460 next (close to the upper boundary of the medium-term descending channel from 14 Jun 2018 high & 61.8% Fibonacci retracement of the decline from 14 Jun 2018 high to 11 Oct 2018 low).

On the flipside, a break below 11300 sees an extension of the on-going medium-term impulsive down move towards the next support at 10800/700 in the first step (see weekly chart).

Charts are from City Index Advantage TraderPro & eSignal