Weekly Technical Outlook on Major Stock Indices 07 Jan to 11 Jan 2019

A test on "Powell Put" as the bears are not out of the woods yet.

S&P 500 – Medium-term downtrend remains intact






Key Levels (1 to 3 weeks)

Intermediate resistance: 2540

Pivot (key resistance): 2603/40

Supports: 2335 & 2280/70

Next resistance: 2825

Medium-term (1 to 3 weeks) Outlook

In our previous weekly technical outlook dated 17 Dec 2018 before the Christmas break, the SP 500 Index (proxy for the S&P 500 futures) had indeed staged the expected bearish breakdown below the 2540/30 long-term downside trigger and hit the medium-term support/target zone of 2475/55 (printed a low of 2315 on 26 Dec 2018). (click here for a recap).

Since its 26 Dec 2018 low of 2315, the Index has staged a 10% rebound within 2 weeks in a low liquidity trading environment to print a current intraday high of 2550 seen in today, 07 Jan Asian session. This on-going rebound has been reinforced by the Fed’s “Powell Put” in play where the Fed Chairman, Powell has used a public forum on last Fri, 04 Jan to smooth the fears triggered by the recent increased volatility seen in the U.S stock market by highlighting that the “he is listening sensitively to the message that the markets are sending about the downside risks and the Fed will be prepared to adjust policy quickly”.

Thus, the recent push up has been built on an optimism that the Fed will start to cut its key interest rate policy and even a slow-down in the Fed’s balance-sheet reduction of its massive holdings of long-term bonds inherited through 3 rounds of quantitative easing programmes.

From a technical analysis perspective, the recent rebound in price action has not confirmed a change in the medium-term down trend that is in place since 03 Dec 2018 high. Key elements are as follow;

  • The 10% rebound from its 26 Dec 2018 low of 2315 has led the Index to retest the 2530/40 long-term downside trigger level (also the formed swing lows formed during Jan/Feb 2018 triggered by a blown out in “short volatility” ETFs) and the former neckline support of major bearish reversal “Head & Shoulders” configuration now acting as a resistance at 2603/40 (see monthly & daily charts).
  • From an Elliot Wave/fractal analysis standpoint, the 10% rebound has appeared to be corrective in nature, a minor degree wave 4/ with potential max target ending at 2620 (a Fibonacci cluster; 61.8% retracement of the recent steep decline from 03 Dec high to 26 Dec 2018 low & 0.764 extension from 26 Dec 2018 low) (see 4-hour chart)
  • Sector rotation analysis from relative strength charting on the S&P sectors ETFs are still showing underperformance of the key “risk on” sectors; Technology and Industrials with a combined weightage of 29% (refer to the 4th chart).
  • The downside trigger level will be at 2460, the lower boundary of a minor “bearish flag” configuration that is taking shape since 26 Dec2018 low.
  • The next significant medium-term support rests at 2280/70 which is defined by the potential exit target of the major bearish “Head & Shoulders” breakdown and a Fibonacci expansion cluster.

Therefore, we maintain the bearish bias if the 2603/40 key medium-term pivotal resistance is not surpassed and a break below 2460 reinforces the start of a fresh potential impulsive downleg to retest the 26 Dec 2018 swing low area of 2335 before targeting the next support at 2280/70

On the other hand, a clearance above 2640 invalidates the bearish scenario for an extension of a choppy corrective rebound towards upper limit of the former 6-weeks range configuration (from 29 Oct/07 Dec 2018) at 2825.

Nikkei 225 – Rebound stalled below 20550/21020 key resistance



Key Levels (1 to 3 weeks)

Intermediate resistance: 20330/550

Pivot (key resistance): 21020

Supports: 18970 & 17900/700

Next resistance: 22780/23000

Medium-term (1 to 3 weeks) Outlook

The Japan 225 Index (proxy for the Nikkei 225 futures) had tumbled as expected and hit the medium-term support/target at 20240 (it printed a low of 18970 on 26 Dec 2018).

Key technical elements remain negative as the recent rebound of 6.9% has led the Index to hover close to its key medium-term resistance zone of 20550/21020 as defined by the upper boundary of descending channel in place since 03 Dec 2018 high and the former range support from 26 Oct to 11 Dec 2018 before the steep decline. In addition, the 4-hour Stochastic has just started to exit from its overbought zone after it hit an extreme over bought level.

Therefore, the upside momentum of the recent rebound from its 26 Dec 2018 low may have been exhausted. We maintain the bearish bias below the 21020 key medium-term pivotal resistance for the start of a potential fresh impulsive downleg to retest the 26 Dec 2018 low of 18970 before targeting the next support at 17900/700 (the lower boundary of the descending channel from 03 Dec 2018 high & Fibonacci extension cluster).

On the other hand, a clearance above 21020 invalidates the bearish scenario for a further squeeze up to retest the 16 Oct/03 Dec 2018 range resistance of 22780/23000

Hang Seng – 26740 remains the key resistance to watch



Key Levels (1 to 3 weeks)

Intermediate resistance: 26370

Pivot (key resistance): 26740

Supports: 25000 & 24490/24000

Next resistance: 28000

Medium-term (1 to 3 weeks) Outlook

The Hong Kong 50 Index (proxy for Hang Seng Index futures) had managed to erase all its losses inflicted on the first half of last week from its 03 Jan 2019 low of 24886.

Overall, the Index is still trapped inside a medium-term sideways range in place since 30 Oct 2018 low. If the 26740 key medium-term pivotal resistance is not surpassed, the Index may see a drop to retest 25000 before targeting the range support at 24490.

On the other hand, a daily close above 26740 sees the revival the corrective rebound to retest the 28000 resistance (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).

ASX 200 – Medium-term downtrend remains intact



Key Levels (1 to 3 weeks)

Pivot (key resistance): 5708

Supports: 5560, 5470 & 5310

Next resistance: 5782

Medium-term (1 to 3 weeks) Outlook

The Australia 200 Index (proxy for the ASX 200 futures) had tumbled as expected and hit the medium-term support/target of 5470 (printed a low of 5400 on 23 Dec 2018, U.S. session).

The post-Christmas rebound of 5.8% has led the Index to retest the 5708 key medium-term pivotal resistance as per highlighted in our previous outlook report. In addition, the 4-hour Stochastic oscillator has started to reverse down from an extreme overbought level.

No change, we maintain the bearish bias below the 5708 key medium-term pivotal resistance for another potential impulsive downleg to retest 21/23 Dec 2018 swing low area of 5415 before targeting the next support at 5310.

 On other hand, a clearance above 5708 invalidates the bearish scenario for a deeper corrective rebound towards the next intermediate resistance at 5950 (swing high areas of 17 Oct/07 Nov 2018 & 61.8% Fibonacci retracement of the entire medium-term downtrend from 17 Aug 2018 high to 23 Dec 2018 low).

DAX – The bears are not all out the woods yet, 11050 key resistance to watch



Key Levels (1 to 3 weeks)

Intermediate resistance: 10810

Pivot (key resistance): 11050

Supports: 10180 & 9965

Next resistances: 11600/690 & 11800

Medium-term (1 to 3 weeks) Outlook

The Germany 30 Index (proxy for the DAX futures) had tumbled as expected and hit the 10180 medium-term support/target as per highlighted in our previous weekly outlook report.

Since its 26 Dec 2018 low of 10178, the Index has staged a rebound of 6.8% to print a high of 10834 on last Fri, 04 Jan U.S. session. Based on Elliot Wave/fractal analysis, the aforementioned rebound has evolved into a series of “overlapping waves” and a “bearish flag” ascending range configuration which took on a similar fractal before the previous two bearish breakdowns seen on 18 Oct 2018 and 05 Dec 2018. These observations suggest that the rebound is more likely to be corrective in nature rather than the start of an impulsive up move structure.

We maintain the bearish bias with an adjusted key medium-term pivotal resistance now at 11050 and added 10600 as the downside trigger (minor bearish flag support) to reinforce the start of another potential impulsive downleg to retest 10180 before targeting the next support at 9965 (the potential exit target of the major bearish reversal “Head & Shoulders” breakdown, the lower boundary of the medium-term descending channel from 04 Oct 2018 high & Fibonacci expansion cluster).

On the other hand, a clearance above 11050 invalidates the bearish scenario for an extension of the corrective rebound towards the next resistance at 11600/690 (the major descending trendline in place since 14 Jun 2018 high & 50% Fibonacci retracement of the entire medium-term down trend from 14 Jun high to 26 Dec 2018 low).   

Charts are from City Index Advantage TraderPro & eSignal








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