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Weekly Technical Outlook on Major Stock Indices 03 Dec to 07 Dec 2018

S&P 500 – Watch the 2825/40 resistance





Key Levels (1 to 3 weeks)

Pivot (key resistance): 2825/40

Supports: 2750 (trigger), 2625/30 & 2540/30

Next resistance: 2864/70

Medium-term (1 to 3 weeks) Outlook

In our previous weekly technical outlook report, the SP 500 Index (proxy for the S&P 500 futures) had staged the expected decline to print a low of 2625 on 23 Nov, 0.8% away from the first downside target/support of 2603 as per highlighted earlier (click here for a recap).  

Since its, 23 Nov 2018 low of 2625, the Index has staged a remarkable positive reversal of 6.9% within the past 1 week to print a current intraday high of 2808 in today (Mon), 03 Dec Asian session. There are two main catalysts for this positive reversal;

  • A recent public speech by Fed Chair Powell on Wed, 28 Nov that stated that the policy fed funds rate “was just below the neutral level”, a stark change where he stated a month ago that the fed funds “rate was a long way from neutral”. The markets had interpreted it as a dovish stance where the Fed may pause its interest rate hike cycle in 2019, recalled that in the previous Fed “dot plot” released in the Sep FOMC, officials projected three interest rate hikes in 2019. The next dot plot release will be on 19 Dec, the last FOMC meeting for 2018.  
  • Trade war ceasefire between U.S. and China after Trump-Xi dinner meeting over the G20 summit weekend on 01 Dec 2018. A positive outcome that came in within expectations where U.S. decided to put on hold the additional tariffs of 25% on US$200 billion worth of China’s exports for 90-days where both sides will be back at the negotiation table. In return, China agreed to purchase U.S. agricultural products with immediate effect and possibility to approve the failed takeover deal of NXP Semiconductors by U.S. chipmaker Qualcomm.

However, key technical elements are not convincing at this juncture to indicate a “Santa rally” in the making.

  • The on-going up move from 23 Nov 2018 low has reached its medium-term range resistance of 2825 in place since 17 Oct 2018 and the pull-back resistance of the former major ascending channel support from 11 Feb 2016 low
  • The 2528 range resistance also confluences closely with a Fibonacci cluster zone at 2810/40 (61.8 retracement of the decline from its all-time high printed on 21 Sep 2018 to 29 Oct 2018 low & 1.00 expansion of the up move from 29 Oct 2018 low to 07 Nov 2018 high projected from 23 Nov 2018 low). Elliot wave/fractal analysis suggests that the recent steep push up from 23 Nov 2018 low of 2625 is likely a corrective c/ wave (last leg) of a sideways/flat range structure; a/, b/, c/ that is taking shape since 29 Oct 2018 low. The potential reversal point of the c/wave of the sideways range stands at the 2825/40 zone.
  • Sector rotation analysis from relative strength charting on the S&P sectors ETFs is also supporting a sideways/range configuration rather than a bullish “Double Bottom” on the S&P 500. The higher weightage “risk-on” sectors such as the Technology, Consumer Discretionary, Industrials, Financials & Communications Services have continued to underperform against the S&P 500.
  • In conjunction of coming close to the 2825 range resistance, the 4-hour Stochastic oscillator has reached an extreme overbought region. These observations suggest that the current upside momentum is overstretched where the odds increases for a potential bearish reversal in price action of the Index.

Therefore, we are still not convinced that the Index is undergoing a bottoming process at this juncture to take it to a new all-time high. 2825/40 is the key medium-term pivotal resistance set for this week and a break below 2750 (the minor ascending trendline in place since 23 Nov 2018 low) is likely to reinforce the start of another impulsive down leg to retest its range support at 2625/03 before targeting the key long-term downside trigger level of 2540/30 (also the Feb 2018 low).

However, a break above 2840 invalidates the bearish view for a further push up towards the next intermediate resistance at 2864/70 in the first step (76.4% Fibonacci retracement of the decline from 21 Sep 2018 high to 29 Oct 2018 low & the former medium-term swing high area of 26/29 Jan 2018).

Nikkei 225 – Back at 23000 resistance

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Key Levels (1 to 3 weeks)

Pivot (key resistance): 23000

Supports: 22060 (trigger), 21220 & 20800

Next resistance: 24200/500

Medium-term (1 to 3 weeks) Outlook

The squeezed seen in the Japan 225 Index (proxy for the Nikkei 225 futures) had led it to hover right below a significant medium-term resistance of 23000 (the former major ascending channel support from Jun 2016 low, the former range resistance from 21 May/29 Aug 2018, 61.8% Fibonacci retracement of the recent decline from 01 Oct 2018 high to 26 Oct 2018 low & 1.00 Fibonacci expansion of the up move from 26 Oct low to 08 Nov 2018 high projected from 20 Nov 2018 low).

In addition, the 4-hour Stochastic oscillator has flashed a bearish divergence signal at its overbought zone which indicates a slowdown in the recent upside momentum of price action. If the 23000 medium-term pivotal resistance is not surpassed and a break below 22060 is likely to see the bears back in control for a further push down to retest the Oct 2018 low of 20800 in the first step.

However, a clearance above 23000 invalidates the bearish scenario for an extension of the corrective rebound to test the major range resistance of 24200/500 in place since 23 Jan 2018.

Hang Seng – Bears need to break below 26170



Key Levels (1 to 3 weeks)

Intermediate resistance: 27300

Pivot (key resistance): 28000

Supports: 26170 (trigger), 25000 & 24490/24000

Next resistance: 29100

Medium-term (1 to 3 weeks) Outlook

The Hong Kong 50 Index (proxy for Hang Seng Index futures) gapped up by 2.4% in today (Mon), 03 Dec Asian session which led it to hover just below a significant resistance zone of 27300/28000 (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).

For the bears to regain their foothold, a break below 26170 is required to kickstart a potential fresh impulsive down leg to target the 24490/24000 support (the 26 Oct 2018 swing low area). However, a clearance above 28000 sees an extension of the squeeze up towards the next resistance at 29100 (the former medium-term range support from 08 Feb/04 Apr 2018, the former major ascending support from Feb 2016 low & close to 61.8% Fibonacci retracement of the decline from 07 Jun 2018 high to 26 Oct 2018 low).

ASX 200 – Capped below resistances



Key Levels (1 to 3 weeks)

Intermediate resistance: 5782

Pivot (key resistance): 5950

Supports: 5685 (trigger), 5590/60 & 5470

Next resistance: 6115

Medium-term (1 to 3 weeks) Outlook

No change, maintain bearish bias below 5950 key medium-term pivotal resistance and added 5685 as the downside trigger level (the minor “Expanding Wedge” support in place since 21 Nov 2018 low). A break below 5685 reinforces another potential fresh impulsive downleg towards the next supports at 5590/60 and 5470.

However, a clearance above 5950 invalidates the preferred bearish tone for a further squeeze up towards the next intermediate resistance at 6115 (close to 61.8% Fibonacci retracement of the decline from 29 Aug 2018 high to 26 Oct 2018 low & former swing low areas of 07 Sep/02 Oct 2018).

DAX – Bears need to break below 11340



Key Levels (1 to 3 weeks)

Pivot (key resistance): 11600/690

Supports: 11340 (trigger), 11050 & 10800/700

Next resistance: 11800/900

Medium-term (1 to 3 weeks) Outlook

Since our last report, the Germany 30 Index (proxy for the DAX futures) had declined as expected and hit the first target/support at 11050 (printed a low of 11007 on 20 Nov 2018).

Thereafter, it staged a 5% rally in the past 1 week triggered by a dovish remark from Fed Chair Powell that tapered the intensity of Fed’s interest rates hikes for 2019 and a trade war truce between U.S. and China for the next 90 days.

No major changes on its key elements, we maintain the bearish bias below the 11600/690 key medium-term pivotal resistance and added 11340 as the downside trigger level (the minor ascending trendline from 20 Nov 2018 low). A break below 11340 reinforces another potential fresh impulsive downleg to retest the 11050 Oct 2018 swing low before targeting the next support at 10800/700.

However, a clearance above 11600/690 invalidates the bearish scenario for an extension of the corrective rebound towards the 11800/900 neckline resistance of major “Head & Shoulders” bearish reversal breakdown.

Charts are from City Index Advantage TraderPro & eSignal







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