the week ahead for major stock indices 19 sep to 23 sep potential final upleg of melt up phase in pr

S&P 500 – Continue to hold above 2110/100 key support for potential recovery

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Intermediate support: 2130

Pivot (key support): 2110/100

Resistances: 2164, 2194/2205 & 2220

Next support: 1991

Medium-term (1 to 3 weeks) Outlook

In our prior weekly outlook published last week on the U.S. SP 500 Index (proxy for the S&P 500 futures), we have stressed that that the Index has reached an important medium-term inflection zone of 2110/2100 where it should see an upleg to complete the “melt-up” phase (not a genuine recovery)  (click  here for a recap).

The current movement of the Index has played out as expected so far as it managed to shape a second “dip” at the 2130 intermediate support as expected and most importantly, the current rebound seen in the major benchmark U.S. stock indices since last week is  being led by the “growth focused/high beta” Nasdaq 100 Index as it ended the week with a positive note (up 2.9% & closed a high at 4818 which surpassed the previous all-time high of 4816 seen during the 2000 dot.com mania, also a stone throw away from the current all-time high of 4839 printed on 07 September 2016).

From a cross asset perspective, we should be placing very close attention to the movement of the bond markets because the movement of global equities are now highly dependent of the perceived liquidity conditions as we have not seen a solid pick-up in global aggregated demand that will drive up earnings growth. Secondly, the bond markets especially  in the sovereign bonds space  are being overly long positioned by shorter-term players (notably quantitative driven hedge funds that are hungered for short-terms capital gains (same signals chasing same signals feedback loop) where bond yields are being suppressed by “whatever it takes” motto of major central banks. Potential cracks have been spotted two weeks ago where we have seen an increase in longer-term sovereign bond yields across the board (JGBs, U.S. Treasuries, German Bunds) that caused the respective yield curves to steepen which triggered a sell-off in global equities (perceived tightened liquidity conditions).  Do note that the “traditional fundamental linkage” does not apply at this juncture where a steepening of the yield curve implies a pick-up in aggregate  demand which will boast economic growth in the future due the recent long “over positioning” of shorter-term players that have distorted the linkage.

As seen on the technical chart of the 10-year yield of the U.S. Treasury note, it is still capped by a key resistance of 1.98 which suggests that that the yield can see a further potential downleg to target 1.085/0.59 zone before a potential completion of its long-term primary downtrend in place since November 1994 with the recent emergence of an impending bullish “Descending Wedge” pattern. Therefore, the bulls of the S&P 500 may still find some temporary solace at this juncture.

No change on our medium-term technical outlook for the U.S. SP 500 Index (proxy for the S&P 500 futures) where it is likely to shape a potential recovery to retest the recent 2194/2205 range top before targeting the next resistance at 2220 (Fibonacci cluster) in the first step.

On the other hand, failure to hold above the 2110/100 pivotal support is likely to invalidate the preferred bullish scenario to see a deeper decline towards the next support at 1991.

Nikkei 225 -  Tolerate excess to 16340 and maintain bullish bias

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Pivot (key support): 16340 (excess)

Resistances: 16900, 17165 & 17500/700

Next support: 15830

Medium-term (1 to 3 weeks) Outlook

Tolerate excess to 16340 and maintain bullish bias. Last week, the Japan 225 Index (proxy for the Nikkei 225 futures) has breached slightly (deviation of 0.94%) below the 16500 predefined medium-term pivotal support as it printed a low of 16345. However, technical elements and intermarket analysis are not sufficient to validate a bearish case for the Index, thus we tolerated the excess to 16340 and maintained our bullish bias. Below are the key elements:

• The Index is still holding above the lower boundary of the medium-term ascending channel in place since 24 June 2016 (Brexit) (see daily chart).
• The aforementioned ascending channel support also confluences with the recent medium-term swing low of 16340 seen on 26 August 2016 and a Fibonacci cluster.
• In conjunction, the daily (medium-term) RSI oscillator is now right above the key pull-back support and ascending trendline in place since February 2016. This cluster of supports seen on the RSI has corresponded with significant rebounds that occurred in the price action of the Index in the past three occasions (depicted by the blue boxes). In addition, the daily RSI is also hovering just above the oversold region. These observations suggest the downside momentum of the recent 2 weeks of decline from 02 September 2016 high has started to abate and a potential rebound in price action may occur at this juncture.
• From an intermarket analysis perspective, the USD/JPY is still holding above its medium-term pivotal support at 101.75/40 (defined by the ascending trendline from 18 August 2016 low, swing low area of 07 September 2016 & a Fibonacci cluster). Given that the movement of the USD/JPY and the Nikkei 225 are directly correlated, there is a high probability that the current bearish tone seen in the Nikkei 225 will be halted at this juncture (refer to the last chart).
• In the short-term, the Index is still being capped below a descending trendline resistance (depicted in pink) now at 16900 from the 02 September 2015 high (see 4 hour chart).

The medium-term pivotal support is being tolerated to 16340 but the Index now needs to break above the 16900 short-term resistance to reinforce the bulls for a further potential up move to target 17165 before the key resistance zone of 17500/700.

On the other hand, a clear break (daily close) below the 16340 medium-term pivotal support is likely to invalidate the preferred recovery scenario for a deeper slide towards the next support at 15830 (former medium-term swing high areas of 30 June/04 July 2016 & close to 61.8% Fibonacci retracement of the up move from 24 June 2016 low to 02 September 2016 high).

Hang Seng Index – Supports held for further potential up move

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Intermediate support: 23200/23000

Pivot (key support): 22700

Resistances: 24500 & 25400

Next support: 21650/380

Medium-term (1 to 3 weeks) Outlook

Maintain bullish bias to see the start of another potential upleg. Last week, the Hong Kong 50 Index (proxy for Hang Seng Index futures) has staged an initial decline in line with the horrendous squeeze down seen in the major benchmark U.S. stock indices on previous Friday, 09 September 2016.

Interestingly, the fall seen in  Hong Kong 50 Index has managed to stall right at our predefined 23200 intermediate support (with a slight breach of 0.68%) before it staged a rebound in the later part of last week (click here for a recap on our previous weekly technical outlook/strategy). Current key elements as follow:

• The daily RSI oscillator remains positive above its trendline support in place since mid-January 2016 and the 50% level. These observations suggest that medium-term upside momentum of price action remains intact.
• The intermediate pull-back support of 23200/23000 also confluences with the 23.6% Fibonacci retracement of the recent up move from 24 June 2016 low (Brexit) to 09 September 2016 high).
• 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).
• As mentioned earlier in our previous reports, the Hong Kong 50 Index (proxy for Hang Seng Index futures) has outperformed the rest of world since the Brexit low of 24 June 2016. Before last week’s decline, the Index has staged a rally of 23.5% to the recent high of 09 September 2016 versus an up move of only 12.8% seen in the iShares MSCI All Country World Index ETF. Based on relative strength (RS) analysis, we reckon that Hang Seng Index is likely to continue to outperform the rest of the world in the medium-term (1 to 3 weeks) as the (RS) chart still has a potential of +5% before reaching the upper boundary of a long-term descending channel in place since the start of this primary global bull market cycle for equites in 2009.
• The medium-term pivotal support remains at 22700.

Maintain bullish bias as long as 22700 medium-term pivotal holds for another potential upleg to target 24500 before 25400.

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

FTSE China A50 – Mixed elements, turn neutral between 9720 & 9330

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Supports: 9330 & 8630/560

Resistances: 9720 & 10135

Medium-term (1 to 3 weeks) Outlook

Turn neutral due to mixed elements. Last week, the China A50 had a shorter trading week as it closed for the Mid-Autumn holidays on Thursday, 15 September till Friday, 16 September.  During this shorten and lower liquidity trading week, it has whipsawed around last week’s medium-term pivotal support at 9700 which also confluences closely with the key 200-day Moving Average.

Elements are mixed at the moment.  On the positive side, the price action of the Index is still holding above the 9330 key medium-term ascending trendline support in place since major swing low area of 24 August 2015 (Black Monday) and in conjunction, the daily RSI oscillator has also managed to rebound from is ascending trendline support in place since 24 August 2015.

On the negative side, the Index is still capped by a short-term descending trendline now at 9720 from the medium-term swing high of 15 August 2016.

Therefore, we turn natural for now and only a break above the 9720 resistance is likely to revive the bulls for a push up to retest the 15 August 2016 swing high area of 10135 in the first step.

On the other flipside, a break below 9330 may see another round of choppy decline towards the upper limit of the long-term key support zone at 8630/560.

DAX –Tolerate excess to 10230 and maintain bullish bias

(Click to enlarge charts)

Key Levels (1 to 3 weeks)

Pivot (key support): 10230 (excess)

Resistances: 10460 & 10990/11050

Next support: 9760

Medium-term (1 to 3 weeks) Outlook

Tolerate excess to 10230 and maintain bullish bias for potential recovery. Last week, the Germany 30 Index (proxy for the DAX futures) has breached below the predefined 10380 medium-term pivotal support (printed a low of 10245) and ended the week below 10380 reinforced by the legal woes of Deutsche Bank as the U.S. Department of Justice slapped it with a latest fine of EUR 12.5 billion over complex mortgage-backed securities transactions before the 2008 Great Financial Crisis. On last Friday, 17 September, the share price of Deutsche Bank gapped down by 8%, its worse single day performance since hitting its current 52-week low of 11.06 on 03 August 2016 which triggered  a negative tsunami across major European financial institutions.

However, after a closer examination of its technical elements, we have classified last week price movement as a “whipsaw”.  Current key elements as follow:

• The current price decline is now right above the 10230 key pull-back support (depicted in dotted green) of the former long-term descending range bullish breakout (see weekly & daily charts).
• The aforementioned pull-back support of 10230 also confluences with a Fibonacci cluster (38.2% retracement from 06 July 2016 swing low + 1.236 projection from 15 August 2016 high of 10806). Based on the Elliot Wave Principal and fractal analysis, these observations suggest a potential low of the on-going intermediate degree corrective wave 4/ at 10230 and the Index is now right at an inflection zone for a potential bullish reversal.
• In conjunction, the longer-term weekly RSI oscillator is also right on its corresponding pull-back support and the 50% level. In addition, the shorter-term (4 hour) Stochastic oscillator has flashed a bullish divergence signal during last Friday, 16 September decline in price action of the Index. These observations suggest that the downside momentum of the on-going decline from 07 September 2016 high has started to abate and the Index may see a bullish reversal at this juncture.
• In the shorter-term, the Index is still being capped below a descending trendline resistance at 10460 which also confluences with the former lower boundary of a minor congestion zone from 22 August 2016 low (see 4 hour chart).

The medium-term pivotal support is being tolerated to 10230 but the Index now needs to break above the 10460 short-term resistance to reinforce the bulls for a potential recovery to retest the minor range top at 10780 before targeting the key resistance zone of 10990/11050.

However, a clear break (daily close) below the 10230 medium-term pivotal support is likely to invalidate the preferred recovery scenario for a deeper slide towards the next support at 9760 (former medium-term swing high area of 30 June/04 July 2016 & 61.8% Fibonacci retracement of the entire up move from 24 June 2016 low to 15 August 2016 high).

Charts are from City Index Advantage TraderPro & eSignal

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this email, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs. All queries regarding the contents of this material are to be directed to City Index, a trading name of GAIN Capital Singapore Pte Ltd.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.