Weekly Technical Outlook on Major Stock Indices 22 Oct to 25 Oct 2018

Recent corrective rebound stalled below resistances, impulsive down move to resume.

S&P 500 – Potential impulsive down move to resume





Key Levels (1 to 3 weeks)

Intermediate resistance: 2800

Pivot (key resistance): 2822 

Supports: 2674 & 2590/85

Next resistance: 2850/75 & 2940

Medium-term (1 to 3 weeks) Outlook

In the first half of last week, the SP 500 Index (proxy for the S&P 500 futures) had indeed shaped the expected corrective rebound from its recent low of 2708 printed on 11 Oct 2018 but it failed to meet the expected corrective rebound target/resistance of 2850.

It surged to a high of 2822 on last Wed, 17 Oct before it reversed down and gave up almost 50% of its gains since the start of the rebound on 11 Oct 2018 to print a low of 2760 on last Fri, 19 Oct U.S. session. Click here for a recap of our previous weekly technical outlook.

There are 2 key technical elements to take note that last week’s rebound may be over and the Index is set to resume another potential leg of down move;

  • The aforementioned rebound from 11 Oct 2018 low of 2708 has stalled at a Fibonacci retracement/projection cluster and broke below the minor “bearish flag” configuration support (a bearish continuation chart pattern that depicts a typical “dead cat” bounce) on 18 Oct 2018, retested and reversed down from its 2800 pull-back resistance on last Fri, 19 Oct, U.S. session (see 4 hour chart).
  • Sector rotation analysis from relative strength charting has continued to show the key leading high beta/risk on sectors ETFs exhibit underperformance against the S&P 500; Technology, Consumer Discretionary, Industrials; Financials & Communication Services with combined weightage of 78.7%. On the other hand, the lagging/defensive sectors ETFs; Consumer Staples and Utilities continue to outperform steadily (refer to 3rd & 4th charts).

Therefore, as long as the 2822 key medium-term pivotal resistance is not surpassed, the Index is likely to stage another round of potential impulsive down move to target the next supports at 2674 (swing low area of 29 May 2018, pull-back support of the former primary/long-term ascending channel resistance from Mar 2009 & 23.3% Fibonacci retracement of the rally from 11 Feb 2016 low to current all-time high of 2941 on 21 Sep 2018) and 2590/85 (swing low area of 03 May 2018 & Fibonacci projection cluster).

However, a break above 2822 put the bears on hold for an extension of the corrective rebound to test the 2850/75 resistance (former medium-term swing high of 26/29 Jan 2018 & 61.8% Fibonacci retracement of the decline from 21 Sep 2018 all-time high to 11 Oct 2018 low).

Nikkei 225 – Potential push down to test major ascending channel support



Key Levels (1 to 3 weeks)

Intermediate resistance: 22760

Pivot (key resistance): 23080

Supports: 21850 & 21600

Next resistance: 23600 & 24200

Medium-term (1 to 3 weeks) Outlook

The Japan 225 Index (proxy for the Nikkei 225 futures) had staged the expected rebound and met its resistance/target of 22750/23000 (printed a high of 22950 on 17 Oct 2018).

We flip back to a bearish bias with 23080 as the key medium-term pivotal resistance (former upper limit of the range configuration in place since 21 May 2018 that has been reintegrated on 10 Oct 2018, pull-back resistance of the former ascending channel support from 23 Mar 2018 low & a Fibonacci retracement/projection cluster) for potential push down to test the 21850/21600 support (major ascending channel support from Jun 2016 low & swing low areas of 03/05 Jul 2018).

However, a clearance above 23080 sees an extension of the corrective rebound to target the next resistance at 23600 (61.8% Fibonacci retracement of the decline from 01 Oct 2018 high to 15 Oct 2018 low) and even the 24200 key medium-term swing high area of 23 Jan 2018 (also a 27-year high since Oct 1991).

Hang Seng – Residual corrective rebound before a potential fresh downleg materialises



Key Levels (1 to 3 weeks)

Intermediate resistance: 27000/260

Pivot (key resistance): 28000

Supports: 24740 & 24360

Next resistance: 29100

Medium-term (1 to 3 weeks) Outlook

The Hong Kong 50 Index (proxy for Hang Seng Index futures) has rebounded fast and furious in today, 22 Oct Asian session where it has broken above last week’s high of 25784 to print a current intraday high of 26169. This upbeat movement is reinforced by a synchronised verbal intervention orchestrated by key China policy makers/bodies since last Fri, 19 Oct to smooth the recent severe down move seen in the key China stock markets.

The most prominent vocal statement came from China President Xi over the weekend who vowed unwavering support for China’s private sector. In addition, the China central policy makers have issued a draft plan to reduce personal income tax on Sat, 20 Oct which covers education, health care, home rental and interest payments on home mortgages. A move that is seen that the authorities are now embarking some form of expansionary fiscal policies after loosening of monetary policies via the recent cut of reserve ratio requirements for both state and smaller banks.

Recalled that we had highlighted in our previous weekly outlook that the Hong Kong 50 Index was due for a corrective rebound towards 27000/260 resistance after oversold conditions seen on its recent decline from 26 Sep 2018 high. Current momentum suggest that the on-going rebound still has “some more room” left as the daily RSI has yet to hit a significant corresponding resistance at the 60 level and the shorter-term 4-hour Stochastic oscillator has not reached an extreme overbought level.

Therefore, the Index is likely to stage a further push up towards 27000/260 resistance (also the lower boundary of the medium-term descending channel from 07 Jun 2018 high) with a maximum limit set at the 28000 key medium-term pivotal resistance (pull-back resistance of the former major ascending support from Feb 2016 low & Fibonacci retracement/projection cluster) before another potential impulsive down move materialises to target the supports of 24740 and 24360.

However, a clearance above 28000 negates the bearish tone for an extension of the corrective rebound towards the next resistance of 29100.    

ASX 200 – Corrective rebound target/resistance met, at risk of another downleg



Key Levels (1 to 3 weeks)

Intermediate resistance: 5950

Pivot (key resistance): 5990

Supports: 5750, 5700 & 5635

Next resistance: 6115

Medium-term (1 to 3 weeks) Outlook

Last week, the Australia 200 Index (proxy for the ASX 200 futures) had managed to stage the expected corrective rebound from its 11 Oct 2018 low of 5747 and hit the lower limit of the resistance/target of 5950 (also the pull-back resistance of the former medium-term descending channel support bearish breakdown, see 4 hour chart).

Therefore, as long as the 5990 key medium-term pivotal resistance is not surpassed (close to the former swing low area of 29 May 2018 & 50% Fibonacci retracement of the recent decline from 28 Sep 2018 high to 11 Oct 2018 low), the Index may start another round of impulsive down move to retest 5750 before targeting the next supports at 5700/635.

However, a clearance above 5990 put the bears on hold for an extension of the corrective rebound towards the next resistance at 6115 (the upper boundary of the medium-term descending channel from 29 Aug 2018 high & former medium-term swing low area of 07 Sep 2018).

DAX – Impulsive down move may resume below key 11800/900 resistance



Key Levels (1 to 3 weeks)

Intermediate resistance: 11715

Pivot (key resistance): 11800/900

Supports: 11300 & 10800

Next resistances: 12225 & 12460

Medium-term (1 to 3 weeks) Outlook

Last week’s rebound seen in the Germany 30 Index (proxy for the DAX futures) from its 11 Oct 2018 low of 11396 has managed to stall right at the key 11800 neckline resistance of a major bearish reversal “Head & Shoulders” configuration that was broken down on 10 Oct 2018 (see weekly chart).

In addition, the above mentioned rebound has formed a “bearish flag” configuration and its lower limit/support has been broken down on last Thurs, 18 Oct now turns pull-back resistance at 11715.  If the 11800/900 key medium-term pivotal resistance is not surpassed, the Index may see another round of impulsive down move to target the next supports at 11300 and 10800 (lower boundary of the minor descending channel from 04 Oct 2018 high, former medium-term swing high areas of Aug/Nov 2016 & Fibonacci projection cluster).

However, a clearance above 11800/900 put the bears on hold for an extension of the corrective rebound towards the next resistance at 12225 (lower boundary of the medium-term descending channel from 14 Jun 2018 high & former minor swing lows area of 28 Sep/04 Oct 2018).

Charts are from City Index Advantage TraderPro & eSignal










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