the week ahead for major stock indices 05 sep to 09 sep potential bulls have resurfaced as desynchro

S&P 500 – Corrective decline is likely to have ended, potential bullish move resumes

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Key Levels (1 to 3 weeks)

Intermediate support: 2170

Pivot (key support): 2155

Resistances: 2194 & 2222

Next supports: 2134 & 2110

Medium-term (1 to 3 weeks) Outlook

Corrective decline in place since 15 August 2016 high of 2194 is likely to have ended. Last week, the U.S. SP 500 Index (proxy for the S&P 500 futures) has indeed shaped the expected decline but it only met our first target/support at 2155 (printed a low of 2156 on 01 September 2016) before it staged a bullish breakout above an intermediate resistance of 2178 on last Friday, 02 September 2016 after the release of the latest U.S. Nonfarm payrolls data for August which came in less than expectation (151K versus 180K).

After a closer examination of the S&P 500 technical elements and intermarket analysis on other major stock indices, we can conclude that the bulls may have resurfaced in the U.S. stock market after three weeks of choppy sideways movement since its current all-time high printed on 2194 on 15 August 2016.

Please click on this link for a recap on our previous weekly technical outlook/strategy.  Current key elements as follow:

• The daily (medium-term) RSI oscillator has managed to stage a rebound at its 1^st pull-back support and inched back up above the 50% level. These observations suggest that upside momentum of price action has started to resurface.
• Last week’s intermediate descending trendline resistance in place since 15 August 2016 high has turned into a pull-back support at 2170.
• The medium-term key support now stands at 2155 which is defined by the 02 August 2016 swing low area and close to the 23.6% Fibonacci retracement of the up move from 27 June 2016 low to 15 August 2016 high of 2194.
• The 4 hour Stochastic oscillator has reached an extreme overbought level which highlights the risk of a short-term decline.
• The next medium-term resistance stands at 2222 which is defined by a Fibonacci cluster.

Therefore, we have turned bullish on the S&P 500 but the Index may see a short-term decline first towards the intermediate support of 2170 before a new potential up move materialises to target the resistances at 2194 and 2222.

On the other hand, a break below the 2155 medium-term pivotal support is likely to invalidate the preferred bullish scenario for a deeper corrective decline to test the key pull-back support zone of 2134/2110.

Nikkei 225 – Pull-back before potential new rise above 16890/500 support

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Key Levels (1 to 3 weeks)

Intermediate support: 16890

Pivot (key support): 16500

Resistances: 17260/380 & 17700/900

Next support: 16000

Medium-term (1 to 3 weeks) Outlook

Potential impulsive bullish up move resumes through the clearance of 16940. Last week,the Japan 225 (proxy for the Nikkei 225 futures) had performed better than our expectation as it did not shape the final push down towards 16100/15900 in line with a bullish USD/JPY. Please click on this link for a recap on our previous weekly technical outlook/strategy.

It had reversed up and broke above the intermediate resistance of 1670 which tapered our initial medium-term bearish corrective view and we turned bullish on last Wednesday, 31 August in our updated daily short-term technical outlook (click here for a recap).Current key elements as follow:

• Since the low of 12 February 2016 (triggered by the second low fixing of the USD/CNY), the Index is undergoing a multi-month bullish basing formation with the neckline resistance at 17900 which also confluences with the descending trendline in place since 21 June 2015 high and a Fibonacci cluster (see daily chart).
• The daily (medium-term) RSI oscillator remains positive as it has broken above its intermediate resistance and still has some room left to manoeuvre to the upside before reaching an extreme overbought level. These observations suggest that upside momentum of price action remains intact.
• The medium-term supports to watch now rests at 16890 (the former swing high area of 21 July/15 August 2016) and 16500 (the lower boundary of the bullish ascending channel in place since 24 June 2016 low and close to the 23.6% Fibonacci retracement of the ongoing up move from 24 June 2016 low to 02 September 2016 high of 17165).
• Based on intermarket analysis, the USD/JPY has staged a bullish breakout above its former medium-term bearish descending channel now turns pull-back support at 103.15. In addition, technical elements remain positive for a further potential up move to target the next resistance at 106.80/107.50 from a medium-term perspective (1 to 3 weeks). Therefore, the bullish elements on the USD/JPY should reinforce the ongoing bullish tone seen in the Nikkei 225 (refer to the last chart).
• The 4 hour (short-term) Stochastic oscillator is now at its extreme overbought level which the Index may see a short-term term decline below the 17260/380 intermediate resistance first before resuming its upward march.

Therefore, the Index faces the risk of a short-term decline first towards the 16890 intermediate support before another potential upleg materialises to target the key resistance zone at 17700/900.

On the other hand, a break below the 16500 medium-term pivotal support is likely to invalidate our preferred bullish scenario for a deeper decline towards the next support at 16000.

Hang Seng Index – 23500 risk level surpassed, turn bullish

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Key Levels (1 to 3 weeks)

Intermediate support: 23200

Pivot (key support): 22700

Resistances: 24500 & 25400

Next support: 21650/380

Medium-term (1 to 3 weeks) Outlook

Turn bullish as 23200/23500 risk zone surpassed. The Hong Kong 50 Index (proxy for Hang Seng Index futures) has continued its relentless climb since the 24 June 2016 low of 19640 (Brexit). Till to date, Hang Seng has rallied by 20% from the 24 June 2016 low versus a corresponding return of 12% seen in the MSCI All Country World Index ETF which make it one of the best performing major stock indices. Current key elements as follow:

• The intermediate support rests at 23200 which is defined by the former minor swing high area of 18 August 2016 and the short-term pull-back support (see 4 hour chart).
• The key medium-term support rests at 22700 which is defined by the minor swing low area of 24 August 2016 and the 23.6% Fibonacci retracement of the current up move in place since 24 June 2016 low.
• Medium-term upside moment of price action remains intact as the daily RSI oscillator has not flash any bearish divergence signal and it continues to hover around the overbought region.
• The next medium-tem resistances stands at 24500 follow by 25400 which is defined by the potential exit target of the “Inverse Head and Shoulders” bullish breakout, Fibonacci cluster and the medium-term swing high area of 20 July 2016 (see weekly & daily charts).
• The 4 hour Stochastic oscillator has reached an extreme overbought level which highlights the risk of a short-term decline.

The bulls have resurfaced but the Index may see a short-term decline first to test the 23200 intermediate support before another potential upleg materialises to target the next resistances at 24500 and 25400.

On the other hand, failure to hold above the 22700 medium-term pivotal support is likely to invalidate our preferred bullish scenario for a deeper decline towards the pull-back support zone of the former “Triangle range” bullish breakout at 21650/380.

FTSE China A50 – Bullish basing above 9700 key support

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Key Levels (1 to 3 weeks)

Pivot (key support): 9700

Resistances: 9900, 10135 & 10500

Next supports: 9330 & 9130 

Medium-term (1 to 3 weeks) Outlook

Maintain bullish bias above 9700 support. The  China A50 Index has managed to hold above the key pull-back support at 9700 and the 200-day Moving Average. Upside momentum of price action has resurfaced as the daily (medium-term) RSI oscillator has started to inch up above its ascending trendline support and the 50% level. A break above the 9900 intermediate resistance is likely to add impetus for a further potential rally towards the recent 16 August 2016 swing high at 10135.

However, failure to hold above the 9700 medium-term pivotal support is likely to see a failed bullish breakout from the former multi-month range consolidation to trigger another round of choppy decline towards the next support at 9330/130.

DAX – Minor pull-back before potential new rise

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Key Levels (1 to 3 weeks)

Intermediate support: 10640

Pivot (key support): 10480/380

Resistances: 10870/990, 11050 & 11350/430

Next supports: 10090 & 9800

Medium-term (1 to 3 weeks) Outlook

Bullish breakout from two weeks of sideways environment.  Last week, the Germany 30 Index (proxy for the DAX futures) has shaped the expected movement as it continued to hold above the 10480/380 predefined support before it did the bullish breakout on 02 September 2016 after the release of the latest U.S. Nonfarm payrolls data for August which came in less than expectation (151K versus 180K).

Please click on this link for a recap on our previous weekly technical outlook/strategy.  Current key elements as follow:

• The Index continues to evolve within the medium-term bullish ascending channel in place since 24 June 2016 with the lower boundary (support) of the channel at 10480/380 (see daily chart).
• The aforementioned ascending channel support of 10480/380 also confluences with the 23.6% of the ongoing up move from 24 June 2016 low to 15 August 2016 high of 10806 and the medium-term swing low area of 22 August 2016.
• Medium-term upside momentum of price action remains intact as the daily RSI oscillator still has room to manoeuvre to the upside above its support/50% level before reaching an extreme overbought level.
• Based on the Elliot Wave Principal and fractal analysis, the Index is likely in the midst of undergoing a potential extended intermediate degree final bullish wave 5/ to complete a primary degree (higher time frame) bullish impulsive wave structure (1). The potential end target of the primary degree impulsive bullish wave (1) stands at the 11350/430.
• The aforementioned potential projected upside target of 11350/430 also confluences with the upper boundary of the ascending channel and the medium-term swing  high area of 01 December 2015 (see daily chart).
• The 4 hour Stochastic oscillator has reached an extreme overbought level which highlights the risk of a short-term decline.

Therefore, the Index may see   a short-term decline first towards the 10640 intermediate support before another potential upleg materialises to target 11050 before the key resistance at 11350/430.

However, failure to hold above the 10480/380 medium-term pivotal support is likely to have serious implications for the bulls as the bullish breakout from the former significant descending range top in place since 12 April 2015 high is considered as a failure. Thus, the Index may see another round of choppy decline towards the next support at 10090 and even 9800.

Charts are from City Index Advantage Trader Pro & eSignal

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