Weekly Technical Outlook on Major Stock Indices 14 Jan to 18 Jan 2019

S&P 500 – At key inflection zone for potential bearish reversal

Key Levels (1 to 3 weeks)

Pivot (key resistance): 2603/40

Supports: 2520 (trigger), 2450, 2335 & 2280/70

Next resistance: 2825

Medium-term (1 to 3 weeks) Outlook

Last week, the SP 500 Index (proxy for the S&P 500 futures) had continued its slow grind upwards and printed a high of 2598 on 10 Jan, U.S. session and the accumulated 10% rebound seen so far from its 24 Dec 2018 swing low area of 2340 was the Index’s biggest 10-day rally in a decade. Expectations have built up that the Fed will be more dovish in 2019 and the on-going trade tensions between U.S. and China are likely to be resolved before the ceasefire deadline on 02 Mar 2019 that are the main drivers for the rebound (click here for a recap).

Interestingly, last week’s up move seen in the Index has led to Index to hover right below the lower limit of our predefined medium-term pivotal resistance at 2603 and key technical elements remain negative as follow;

• The price action of the Index has formed a series of “Spinning Tops” candlestick patterns seen on the daily chart as it inched upwards towards the 2603/40 key medium-term resistance. These observations suggest “indecisiveness” by the bulls to push prices higher. In addition, the Index has traced out a bearish reversal “Ascending Wedge” range configuration seen in the 4-hour chart where the rate of change of the “higher highs” is lesser that the “higher lows”
• Momentum analysis has also indicated potential weakness ahead. The daily RSI oscillator has reached a significant corresponding resistance at the 57/66 level and the shorter-term 4-hour Stochastic oscillator has flashed a bearish divergence signal at its overbought region since 09 Jan 2018.
• Sector rotation analysis from relative strength (RS) charting on the S&P sectors ETFs has indicted that a key “risk on” sector; the Financials has started to underperform the S&P 500 as its RS has staged a bearish breakdown on 08 Jan from its ascending trendline support in place since 14 Dec 2018. Interestingly, this observation has occurred in light of the upcoming key U.S banks’ Q4 earnings results releases out this week (14 Jan - Citibank, 15 Jan – JP Morgan & Wells Fargo, 16 Jan – Bank of America & Goldman Sachs). Also, based on the last Fri, close of 11 Jan 2018, the Financials sector has a weightage of 13.3% which is the 3rd highest in the S&P 500 after Technology (19.9%) and Healthcare (15.2%).
• The potential downside trigger level to break the momentum of the on-going rebound rests at 2520 which is defined by the former minor congestion zone’s upper limit formed from 28 Dec 2019/03 Jan 2019 and close to the lower boundary of the bearish “Ascending Wedge” (see 4-hour chart)
• The next significant medium-term support rests at 2280/70 which is defined by the potential exit target of the major bearish “Head & Shoulders” breakdown (see monthly chart) and a Fibonacci expansion cluster.

Therefore, we maintain the bearish bias if the 2603/40 key medium-term pivotal resistance is not surpassed and adjust the downside trigger level to 2520. A break below 2520 reinforces the start of a fresh potential impulsive downleg to retest the 26 Dec 2018 swing low area of 2340 before targeting the next support at 2280/70.

However, a clearance above 2640 invalidates the bearish scenario for an extension of a choppy corrective rebound towards upper limit of the former 6-weeks range configuration (from 29 Oct/07 Dec 2018) at 2825.

Nikkei 225 – Recent rebound has stalled below resistance

Key Levels (1 to 3 weeks)

Intermediate resistance: 20330/550

Pivot (key resistance): 21020

Supports: 19800 (trigger), 18970 & 17900/700

Next resistance: 22780/23000

Medium-term (1 to 3 weeks) Outlook

Last week’s rebound seen in the Japan 225 Index (proxy for the Nikkei 225 futures) has managed to stall at the 20330/550 intermediate resistance zone as expected.

One interesting significant price action configuration we will like highlight is that the on-going rebound from the 26 Dec 2018 swing low area of 18970 has evolved into a similar fractal geometry as seen from the previous range configuration formed on 30 Oct 2018 low of 20800 to 03 Dec 2018 high of 22784 before the recent bearish breakdown materialised.

No change, we maintain the bearish bias below the 21020 key medium-term pivotal resistance and added 19800 as the potential downside trigger level (the minor range support- see 4-hour chart) to add impetus for the start of a potential fresh impulsive downleg to retest the 26 Dec 2018 low of 18970 before targeting the next support at 17900/700 (Fibonacci expansion cluster).

However, a clearance above 21020 invalidates the bearish scenario for a further squeeze up to retest the 16 Oct/03 Dec 2018 range resistance of 22780/23000.

Hang Seng – Bearish reaction right below 26740 resistance

Key Levels (1 to 3 weeks)

Intermediate resistance: 26540

Pivot (key resistance): 26740

Supports: 25745, 25000 & 24490/24000

Next resistance: 28000

Medium-term (1 to 3 weeks) Outlook

The recent rebound seen in the Hong Kong 50 Index (proxy for Hang Seng Index futures) from its 03 Jan 2018 low of 24886 had managed to stall and staged a bearish reaction right below the predefined 26740 key medium-term pivotal resistance (printed a high of 26709 on last Fri, 11 Jan).

Based on current price action, the Index is now likely to be evolving within a “triangle-liked” range configuration in place since 26 Oct 2018 swing low area of 24490. No change, maintain bearish bias below the 26740 key medium-term pivotal resistance for a further potential push down to target 25745 before the triangle range support at 25000. Only a daily close below 25000 is likely to open up scoped for another round of potential impulsive down move towards the next supports at 24490 and 24000.

However, a daily close above 26740 sees the revival the corrective rebound to retest the 28000 resistance (the 26 Sep 2018 swing high, 50% Fibonacci retracement of the decline from 07 Jun 2018 high to 26 Oct 2018 low & 1.00 Fibonacci expansion of the up move from 26 Oct low to 02 Nov 2018 high projected from 13 Nov 2018 low).

ASX 200 – Watch the 5810 resistance

Key Levels (1 to 3 weeks)

Pivot (key resistance): 5810

Supports: 5680 (trigger), 5520, 5415 & 5310

Next resistance: 5950/6000

Medium-term (1 to 3 weeks) Outlook

Last week, the Australia 200 Index (proxy for the ASX 200 futures) had pierced above the 5708 key medium-term pivotal resistance to print a high of 5810 on last Fri, 11 Jan 2019. Interestingly, the rebound has managed to stall at the previous swing high area of 03 Dec 2018 before minor “Expanding Wedge” range configuration bearish breakdown on 05 Dec 2018. In addition, the 4-hour Stochastic oscillator has flashed out a bearish divergence signal at its overbought region with the daily RSI oscillator right below a significant corresponding resistance at the 60 level. These observations suggest that last week’s upside momentum of price action has started to wane.

Thus, we tolerate the excess and maintain the bearish bias with a new medium-term pivotal resistance at 5810 which also confluences closely with the 38.2% Fibonacci retracement of the recent decline from 17 Aug 2018 high of 6380 to 23 Dec 2018 low of 5401 and added 5680 as the downside trigger level (former minor swing high areas of 07/31 Dec 2018) to reinforce a potential downleg to retest the 23 Dec 2018 swing low area of 5410 before targeting the next support at 5310.

However, a clearance above 5810 invalidates the bearish scenario for a deeper corrective rebound towards the next intermediate resistance at 5950/6000 (swing high areas of 17 Oct/07 Nov 2018 & 61.8% Fibonacci retracement of the entire medium-term downtrend from 17 Aug 2018 high to 23 Dec 2018 low).

DAX – Watch the 10645 downside trigger

Key Levels (1 to 3 weeks)

Intermediate resistance: 10950

Pivot (key resistance): 11050

Supports: 10645 (trigger), 10180 & 9965

Next resistances: 11600/690 & 11800

Medium-term (1 to 3 weeks) Outlook

Last week, the Germany 30 Index (proxy for the DAX futures) had continued to inch higher within a minor “bearish flag” ascending range configuration in place since 26 Dec 2018 low. Last Fri, 11 Jan, the Index had staged a pull-back on the upper boundary of the “bearish flag” at 10950 right below the predefined 11050 key medium-term pivotal resistance.  

No change, we maintain the bearish bias below the 11050 key medium-term pivotal resistance and adjusted the potential downside trigger level to 10645 (the former minor swing high area of 27 Dec 2018 & the lower boundary of the “bearish flag”). A break below 10645 reinforces the start of another potential impulsive downleg to retest 10180 before targeting the next support at 9965 (the potential exit target of the major bearish reversal “Head & Shoulders” breakdown, the lower boundary of the medium-term descending channel from 04 Oct 2018 high & Fibonacci expansion cluster).

However, a clearance above 11050 invalidates the bearish scenario for an extension of the corrective rebound towards the next resistance at 11600/690 (the major descending trendline in place since 14 Jun 2018 high & 50% Fibonacci retracement of the entire medium-term down trend from 14 Jun 2018 high to 26 Dec 2018 low).   

Charts are from City Index Advantage TraderPro & eSignal