weekly technical outlook on major stock indices 12 dec to 16 dec u s continues to lead as fomc looms

S&P 500 – Further potential acceleration towards 2335/60 risk zone after pull-back

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Key Levels (1 to 3 weeks)

Intermediate support: 2220

Pivot (key support): 2200

Resistances: 2260/70, 2303 & 2335

Next supports: 2145/32

Medium-term (1 to 3 weeks) Outlook

The U.S. SP 500 Index (proxy for the S&P 500 futures) has indeed moved within expectation as it rallied and continued to hit a fresh all-time high with our first medium-term upside target/resistance  met at 2245. Please click on this link for a recap of our previous weekly technical outlook/strategy.

From an integrated technical analysis perspective, we still view that current up move as  “melt-up phase” before a pronounced correction sets in and the Index is now fast approaching the risk zone of 2335/60 (see weekly chart).

We also reckon that the market will soon start to take notice on the impact of a strong USD that can have a negative spill-over effect on international revenue flows of  U.S. corporations in 2017 after the euphoria in Trumponomics fades.  Based on data from FactSet, S&P 500 companies have an aggregate overseas revenue exposure of 31% which is considered significant.  From a technical analysis perspective, we also expect the on-going medium-term bullish trend of a strong USD to continue into Q1 2017 unless the U.S. Federal Reserve disappoints next Wednesday, 14 December 2016 by not hiking the Fed rate. Latest data as at 08 December 2016, the 30-day Fed Fund futures contract has priced in a 94.9% chance of 25bps hike this coming Wednesday.

In addition, the strength of USD will be reinforced if the usual “gradual phase” of interest rates normalisation is being replaced in the policy statement by a more “hawkish term”. In the upcoming FOMC meeting, the Fed will also be releasing the “dot plot” of future policy interest rates and key economic data projections. In the last “dot plot” released on the 20/21 September 2016 FOMC meeting, Fed officials have reduced the projection of interest rate hikes for 2017 from three to two. Thus, if Fed officials revise up their future inflation projections and the pace of future interest rate hikes, it will be deemed as USD positive as well which can see further USD strength.

For the coming week, we are still maintaining our bullish bias on the S&P 500 but it may see a pull-back first at the 2260/70 intermediate resistance given that the 4 hour Stochastic oscillator has almost reached its extreme overbought level. Intermediate support to watch will be at 2220 follow by the medium-term pivotal support of 2200 to kick start another potential upleg to target the 2303 resistance.

Nikkei 225 – Potential acceleration towards 19860/20000 risk zone

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Key Levels (1 to 3 weeks)

Intermediate support: 18800

Pivot (key support): 18540

Resistances: 19550 & 19860/20000

Next support: 17500

Medium-term (1 to 3 weeks) Outlook

The Japan 225 Index (proxy for the Nikkei 225 futures) has broken above the 18800 medium-term pivotal resistance which has cut short/invalidated the preferred pull-back/consolidation scenario as per highlighted in our prior weekly technical outlook (please click here for a recap).

In addition, the USD/JPY has also managed to stage a bullish breakout from a minor trendline resistance in place since 01 December 2016 after it hit our first downside target/support of 113.00 on Monday, 05 December 2016 (printed a low of 112.84). Technical elements as seen on the USD/JPY have suggested that USD strength pull-back/consolidation is likely to have ended and as long as the 113.20 medium-term pivotal support holds, the pair is likely to see a further potential up move to target the next resistance at 116.20 (see daily & 4 hour charts on USD/JPY).

Given the direct correlation between USD/JPY and Nikkei 225, a positive movement in USD/JPY should advocate for a further upside in Nikkei 225.  In addition, technical elements as seen in the Index are suggesting that it is undergoing the acceleration/melt-up phase as indicated by the steep ascending channel in place since 09 December 2016 low coupled with overbought conditions seen in both the daily RSI oscillator and 4 hour Stochastic oscillator.

Therefore as long as the 18540 medium-term pivotal support holds, the Index is likely to see a further upside movement towards 19550 before a final potential push up towards the 19860/20000 risk zone to complete the 5 wave up move of the intermediate degree wave (c) based on the Elliot Wave Principal/fractal analysis. Thereafter, a potential steep correction may unfold.

However, a break below the 18540 pivotal support may invalidate the preferred bullish bias for a choppy decline to retest the next support at 17500 (the pull-back neckline of the recent bullish breakout from the “basing formation” seen from January to June 2016).

Hang Seng Index – 23100 is still the “critical level” for the bulls

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Key Levels (1 to 3 weeks)

Intermediate support: 22460

Pivot (key support): 21900

Resistances: 23100 (upside trigger), 24500 & 25400

Next support: 21680/400

Medium-term (1 to 3 weeks) Outlook

Technical elements remain unchanged and a break above 23100 is still required for the bulls of Hong Kong 50 Index (proxy for Hang Seng Index futures) to stage a potential bullish breakout from the three month plus of sideways range configuration in place since 09 September 2016. A daily close above 23100 is likely to trigger the start of a potential medium-term (1 to 3 weeks) of up move to target 24500 in the first step.

However, failure to hold above the 21900 medium-term pivotal support may invalidate preferred bullish bias to see a further slide to test the next support zone at 21680/400 (the pull-back support of the former “symmetrical triangle range” bullish breakout & the ascending trendline in place since 11 February 2016 low).

ASX 200 – Target/resistance almost reached at 5580/5610, turn neutral

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Key Levels (1 to 3 weeks)

Supports: 5500 & 5400

Resistances: 5650 & 5720/780

Medium-term (1 to 3 weeks) Outlook

The Australia 200 Index (proxy for the ASX 200 futures) has rallied as expected and it is now fast approaching the medium-term upside target/resistance of 5580/5610.

Due to mixed elements, we have decided to adopt a neutral stance for now between 5650 and 5500.

DAX – Risk of pull-back/consolidation before new upleg

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Key Levels (1 to 3 weeks)

Intermediate support: 10980

Pivot (key support): 10810

Resistances: 11280, 11430 & 11780

Next support: 10230/200

Medium-term (1 to 3 weeks) Outlook

The Germany 30 Index (proxy for the DAX futures) has finally managed to stage a bullish break out above the 10810 range top in place since 15 August 2016. In addition, it has recorded the best weekly run so far since February 2016 as it rallied by 8% from its low of 10355 printed on Monday, 05 December 2016.

The market shrugged off the outcome of the recent Italian referendum on constitution reforms that can have ramifications on the troubled Italian banking sector which may trigger a Eurozone banking crisis. Also, in the latest ECB monetary policy meeting held on Thursday, 08 December 2016, the central bank has extended its QE programme beyond expectations to December 2017 instead of September 2017 and signalled prolonged ECB market presence if Eurozone economic conditions deteriorate. European stock markets view this policy stance as dovish and positive for equities despite the reduction in the QE monthly quantum from EUR80bn to EUR60bn that will start from April 2017.

Technically, we view the current rally as being overstretched  as it is now coming close to an intermediate resistance at 11280 (upper boundary of a medium-term ascending channel, major swing high area of 30 November 2015 and a Fibonacci cluster). In addition, shorter-term (4 hour) Stochastic oscillator has flashed a bearish divergence signal at its extreme overbought level.

Therefore, as long as the 11280 is not surpassed, the Index may see a pull-back first towards 10980 with a maximum limit set at the 10810 medium-term pivotal support before another potential upleg materialises to target the next resistance at 11430 and even 11780 next.

On the other hand, failure to hold above the 10810 pivotal support is considered as failure bullish breakout and the Index may see a steep decline to retest the base of the multi-month range at 10230/200.

Charts are from City Index Advantage TraderPro & eSignal

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