weekly technical outlook on major stock indices 28 nov to 02 dec mixed bag as italys referendum loom

 S&P 500 – Pull-back before new potential rise above 2190/78 support

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Key Levels (1 to 3 weeks)

Intermediate support: 2190

Pivot (key support): 2178

Resistance: 2245

Next supports: 2120 & 2100

Medium-term (1 to 3 weeks) Outlook

Last week, the U.S. SP 500 Index (proxy for the S&P 500 futures) has rallied and recorded a new all-time high of 2213 after it lagged behind the Dow Jones Industrial and Russell 2000 (small-caps) in the on-going post U.S. presidential election rally.  The SP 500 Index has also hit our first medium-term target/resistance of 2211. Please click on this link for a recap of our previous weekly technical outlook/strategy.

Sector Rotation

The initial up move from the 09 November 2016 low of 2032 (post U.S. presidential election) has seen leadership concentrated on the Industrials, Materials and Financials sectors due to the “Trumpflation” theme. The Technology sector which comprises F.A.N.G –liked momentum driven stocks and Utilities sectors are being sold off. In our short-term technical update dated on 18 November, we have highlighted that the sell-off seen in the Technology sector ETF (XLK) is being “indiscriminately” overdone and technical elements are oriented towards a potential recovery (click on this link for a recap). The XLK has indeed staged a rebound from the 45.80/44.70 predefined key support zone. It is now eying to make a new record high which is line with the tech-heavy benchmark Nasdaq 100 (the only index that has yet to print a new all-time high, current all-time high at 4911 on 24 October 2016). Therefore it is likely that in the medium-term (1 to 3 weeks), the Technology sector can see a “catch-up” and take on a leadership role in the second phase of the current up move (refer to the 3^rd chart)

Overall, the SP 500 Index still has room for further upside potential to target a new high at 2245 within the “melt-up phase”. But it may first see a minor pull-back towards 2178 with a maximum limit set at the new 2178 medium-term pivotal support as the shorter-term (4 hour) Stochastic oscillator still has room for further downside before reaching an extreme oversold level.

On the hand, a daily close below the 2178 pivotal support is likely to invalidate the preferred bullish scenario for a deeper retracement to retest the next support at 2120.

Nikkei 225 – Coming close to target/resistance at 18630, risk of pull-back/consolidation

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Key Levels (1 to 3 weeks)

Intermediate resistance: 18630

Pivot (key resistance): 18800

Supports: 17900/740 & 17500

Next resistance: 19550

Medium-term (1 to 3 weeks) Outlook

The Japan 225 Index (proxy for the Nikkei 225 futures) has rallied within our expectations and last Friday, 28 Nov high of 18483 has almost hit our medium-term (1-3 weeks) upside target/resistance of 18630. Please click on this link for a recap of our previous weekly technical outlook/strategy. Current key elements as follow:

• The upper boundary( resistance) of a medium-term bullish ascending channel in place since the Brexit 24 June 2016 low stands at 18630/800 which also confluences with a Fibonacci cluster (61.8% retracement of the down move from 21 June 2016 high to 12 February 2016 low + 1.00 projection from 24 June 2016 low) (see daily chart)
• Based on the Elliot Wave Principal and fractal analysis, the Index is likely in the mist of undergoing a minor degree bullish impulsive wave 3 from the minor swing low of 17270 (printed on 11 Nov 2016, wave 2). The potential end target of the wave 3 stands at 18800 which coincide with the aforementioned graphical ascending channel resistance. These observations suggest that a potential imminent minor corrective wave 4 (pull-back/consolidation in price action) may occur soon after a potential “final push up” towards the 18630/18800 zone.
• From an intermarket/cross-asset perspective, the USD/JPY is now coming close to a medium-term resistance at 114.60 which is likely to be in parallel with the Nikkei’s resistance at 18630/880. Technically, the recent post U.S. presidential election rally seen in the USD/JPY has appeared to be “overstretched” where a pull-back/consolidation is likely after a potential final push up to test 114.60. This observation reinforces the risk of an imminent pull-back/consolidation for the Index given the strong direct correlation movement between the Nikkei 225 and USD/JPY (refer to the 3^rd chart).

Therefore, the Index is likely to see a- pull-back consolidation towards the 17900/740 support zone with a maximum limit set at 17500 after a potential final push up towards 18630/800.

However, a clearance above the 18800 medium-term pivotal resistance may invalidate the preferred pull-back/consolidation scenario to see a continuation of the rally to target the next resistance at 19550.

Hang Seng Index – Bulls need to break above 23100

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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

After two weeks of sideways movement since 09 November 2016, the Hong Kong 50 Index (proxy for Hang Seng Index futures) has started to show positive signs. One of them can be seen from the daily RSI oscillator that has staged a bullish breakout from its former descending resistance (depicted in dotted green) and the 50% level. These observations suggest a revival in upside momentum of price action (see daily chart).

Therefore, a break 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.

On the other hand, 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 – Pull-back before a new potential rise

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Key Levels (1 to 3 weeks)

Intermediate support: 5427

Pivot (key support): 5370

Resistances: 5580/5610

Next supports: 5300 (downside trigger) & 5040

Medium-term (1 to 3 weeks) Outlook

The Australia 200 Index (proxy for the ASX 200 futures) has managed to stage the expected rally and surpassed our first expected medium-term target/resistance of 5460 (printed a high of 5523 on 25 November 2016). Please click on this link for a recap of our previous weekly technical outlook/strategy.

Technical elements remain positive after the recent bullish breakout from its former descending trendline from 01 August 2016 high now turns into a pull-back support at 5427 (see daily chart).

In the short-term (1 to 3 days), the Index faces the risk of further pull-back to complete the minor degree corrective wave 4 (Elliot Wave Principal & fractal analysis) at 5427 with a maximum limit set at the latest medium-term pivotal support of 5370. Thereafter, another round of medium-term (1 to 3 weeks) of potential upside movement should kick-start to target the next resistance at 5580/5610.

However, failure to hold above the 5370 medium-term pivotal support is likely to negate the bullish tone to see a further slide to retest the 5300 level (lower boundary of an ascending channel in place since the 10 February 2016 low. Only a daily close below 5300 may trigger a deeper decline to retest the U.S. Presidential Election Day swing low area of 5050.

DAX – Tug of war below 10810

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Key Levels (1 to 3 weeks)

Pivot (key support): 10575

Resistances: 10810 (upside trigger), 10990 & 11190

Next support: 10230/200 & 9965

Medium-term (1 to 3 weeks) Outlook

Since the post U.S. presidential election rally, the Germany 30 Index (proxy for the DAX futures) has traded sideways for two weeks after it printed a high of 10797 on 16 November 2016. Interestingly, the current sideways range of 1.8% has continued to hold above the 10575 medium-term pivotal support.

The lacklustre performance seen on the DAX after the post U.S. presidential election rally is caused by an impending political risk event on this Sunday, 04 December 2016, the upcoming Italy’s referendum on constitutional changes proposed by Prime Minster Renzi to limit the power of the Senate, the upper house of the parliament.  A “No” vote is perceived as a risk-off event as it will be deemed as a boost for the “populist and Eurosceptic” Five Star Movement opposition party. Any gains from a weak EUR/USD via the export channel will be offset by political uncertainty.    

Technically, a clear barrier for the bulls has been formed at the 10810 resistance level (see daily chart). Therefore, the Index is required to have a clearance above 10810 in order to unleash another round of medium-term (1 to 3 weeks) of up move to target 10990 before 11190 next. However, do note that our longer-term view still remains intact; this up movement is considered as a “melt-up” phase before a potential significant correction occurs.

On the other hand, a daily close below the 10575 medium-term pivotal support should invalidate the bullish bias to see another round of choppy decline to retest the 10230/200 support.

Charts are from City Index Advantage TraderPro & eSignal

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