Weekly Technical Outlook on Major Stock Indices 18 Feb to 22 Feb 2019

S&P 500 is approaching 2815 key long-term pivotal resistance.

S&P 500 – Approaching key long-term pivotal resistance

click to enlarge charts

Key Levels (1 to 3 weeks)

Resistances: 2815 (long-term pivot) & 2875

Supports: 2670, 2600 & 2520/2495

Medium-term (1 to 3 weeks) Outlook

The SP 500 Index (proxy for the S&P 500 futures) had continued its relentless surge upwards and ended last week with a 2.3% rally to close last Fri, 15 Feb U.S. session at 2775 (above the 200-day Moving Average as well). The Index has recorded its 8th consecutive week of positive gains since its 26 Dec 2018 swing low and it translates into a 18% rally over 35 trading days. That is an average of 0.5% gain per day and such a “vertical pace” seems to be unsustainable without any decent pull-back or retracement of the on-going rebound. The narrative that has been supporting this rally is the “positive guidance” from politicians that the U.S and China trade negotiation talks are going well ahead of the March 01 deadline for further tariffs to be imposed on China’s products coupled with a dovish stance from U.S central bank, Fed in taking a pause on its interest rate hiking cycle amid a broad downward revision on earnings expectations for Q1 2019 and a weakening global economic climate.  

From a technical analysis perspective, there are 4 elements that warrant caution on this rally at this juncture;

  • The Index is now coming close to the 2815 long-term pivotal resistance as per highlighted in the Q1 2019 Global Markets Outlook defined by the Nov/Dec 2018 swing high areas, close to the 76.4% Fibonacci retracement of the entire down move from its 21 Sep 2018 all-time high to 26 Dec 2018 low and close to the pull-back resistance of the former major ascending channel support from 11 Feb 2016 low (see daily chart).
  • The daily RSI oscillator is now hovering at an overbought level of 73 which was a similar level seen on 29 Aug 2018 before the Index peaked on 21 Sep 2018 at its current all-time high of 2941.
  • From its minor swing low of 2623 printed on 29 Jan 2019, the Index has started to evolve into a minor bearish “Ascending Wedge” configuration with an extreme overbought reading seen in the 4-hour Stochastic oscillator (see 4-hour chart).
  • From a relative strength charting analysis against the S&P 500, the key “risk on” benchmark stock/sector indices; the Nasdaq 100, the Russell 2000, Semiconductor sector and the NYSE FANG+ Index are still not showing any clear strength of outperformance yet over the S&P 500 despite the on-going 18% recovery seen from its 26 Dec 2018 low (refer to the last chart).

Therefore, we maintain the neutral stance. Only a weekly close above the 2815 long-term pivotal resistance shall see the return of a melt-up phase to target 2875 follow by the 2940 all-time high area in the first step.

On the flipside, a break below 2670 is likely to reinforce a potential deep pull-back towards 2600 (the former swing low areas of Oct/Dec 2018) and even 2520/2495 next (61.8% Fibonacci retracement of the on-going rebound from 26 Dec 2018 low to 15 Feb 2019 high).

Nikkei 225 - Corrective rebound extends

click to enlarge charts

Key Levels (1 to 3 weeks)

Pivot (key support): 20840

Resistances: 21880 & 22175

Next supports: 20200 & 18970

Medium-term (1 to 3 weeks) Outlook

The Japan 225 Index (proxy for the Nikkei 225 futures) has continued to push higher on last Fri, 15 Feb U.S. session and surpassed above the 21020 key medium-term pivotal resistance as well as the descending channel resistance from 01 Oct 2018 high.

Technical elements are advocating an extension of the corrective rebound in place since 26 Dec 2018 swing low to target the next resistance at 21880 with a maximum limit set at 22175. Key medium-term support to maintain the extended corrective rebound rests at 20840 (close to the lower boundary of the ascending channel from 26 Dec 2018 low and the former swing high areas of 18 Jan/06 Feb 2019).

On the other hand, failure to hold at 20840 reinstates the bearish tone for a slide to retest 20200 in the first step.

Hang Seng – Mix elements

click to enlarge charts

Key Levels (1 to 3 weeks)

Resistances: 28560 & 29100

Supports: 27290, 26740 & 27070

Medium-term (1 to 3 weeks) Outlook

The Hong Kong 50 Index (proxy for Hang Seng Index futures) is now testing the upper boundary of a complex “Expanding Wedge” range configuration in place in since 26 Oct 2018 low of 24487 and the descending trendline from its 29 Jan 2018 all-time high area now acting as a resistance at 28560.

In addition, the daily RSI oscillator has remained below its resistance/overbought level at 70 and the shorter-term 4-hour Stochastic oscillator has continued to flash divergence signal at its overbought region.

Mix elements, prefer to turn neutral first between 28560 and 27290 (the swing high area of 03 Dec 2018). A break below 27290 is likely to reinstate a bearish tone for at least a deeper pull-back within the “Expanding Wedge” to target the next supports at 26740 and 27070 in the first step.

On the other hand, a daily close above 28560 sees a further squeeze up to test the lower limit of the long-term pivotal resistance zone at 29100.

ASX 200 – 6150/200 remains the key resistance to watch

click to enlarge charts

Key Levels (1 to 3 weeks)

Intermediate resistance: 6110

Pivot (key resistance): 6150/200 (long-term pivot)

Supports: 5920 (trigger) & 5700

Next resistance: 6380

Medium-term (1 to 3 weeks) Outlook

The Australia 200 Index (proxy for the ASX 200 futures) has managed to trade sideways below the 6110 intermediate resistance (07 Feb 2019 minor swing high area).

No change, maintain bearish bias below the 6150/200 key pivotal resistance and a break below 5920 reinforces the bears to push the Index lower to target the next support at 5700 in the first step.

On the other hand, a clearance above 6200 invalidates the bearish scenario for an extension of the rebound to retest the 17 Aug 2018 swing high area of 6380, also the 52-week high.

DAX – 11390/540 remains the key resistance to watch

click to enlarge charts

Key Levels (1 to 3 weeks)

Pivot (key resistance): 11390/540

Supports: 11020, 10800 & 10690/640

Next resistance: 11800 (lower limit of long-term pivot)

Medium-term (1 to 3 weeks) Outlook

Last Fri (15 Feb), the Germany 30 Index (proxy for the DAX futures) had reversed up and erased its initial losses to stage a push up towards the 11300 psychological level.

No major changes on its key technical elements as the Index remains below the major descending trendline resistance from 14 Jun 2018 and the 11390/540 key medium-term pivotal resistance. Maintain bearish bias and added 11020 as the downside trigger level to reinforce a potential decline to target the next supports at 10800 and 10690/640 (the former congestion area of 27 Dec 2018/02 Jan 2019 & 61.8% Fibonacci retracement of the on-going rebound from 26 Dec 2018 low to 05 Feb 2019 high).

On the hand, a clearance above 11540 put the bears on hold for an extension of the corrective rebound towards the 11800 major resistance (the former neckline support of the major “Head & Shoulders” bearish breakdown).

Charts are from City Index Advantage TraderPro & eSignal

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.