Weekly Technical Outlook on Major Stock Indices 21 Jan to 25 Jan 2019

S&P 500 – Mix elements

Key Levels (1 to 3 weeks)

Resistances: 2700 & 2825

Supports: 2600, 2450 & 2350/40

Medium-term (1 to 3 weeks) Outlook

The SP 500 Index (proxy for the S&P 500 futures) continued its relentless climb upwards despite 6 listed firms in the S&P 500 had issued negative earnings guidance for Q1 2019 and no firms have a positive earnings guidance so far for the week ended 18 Jan 2019 in the current Q4 2018 earnings session based on data compiled by FactSet. In addition, consumer confidence is under threat now as the partial U.S. government shutdown has stretched past 25 days, the longest in U.S. history.

The 4-week rebound of 13% from its 24 Dec 2018 low has broken above the upper limit of our medium-term pivotal resistance at 2640 on last Fri, 18 Jan (click here for a recap) driven by 2 key narratives; an optimistic outcome that U.S. and China will resolve their trade tensions before the 01 Mar 2019 deadline and the number of increasing “Fed talks” from officials that advocate patience in raising future Fed funds interest rates. Despite the break of the 2640, we are still reluctant to turn outright bullish at this juncture for a V-shaped recovery. Elements to be take note will be as follow:

• The daily RSI oscillator of the Index is now retesting a former significant ascending support from Feb 2018 low now pull-back resistance at the overbought region. These observations suggest the on-going rebound is overstretched at this juncture.
• The price action of the Index remains below a descending trendline from its current all-time high swing area of 21 Sep 2018 now acting as a resistance at 2700 which also confluences with the 61.8% Fibonacci retracement of the entire down move from the all-time high printed on 21 Sep 2018 to 26 Dec 2018 low.
• The longer-term, weekly relative strength (RS) charting analysis that comprises the higher beta benchmark indices against the S&P 500 has not confirmed a bottoming process yet as the (RS) of Nasdaq 100 and NYSE FANG+ Index has not staged their respective bullish breakout (see last chart)
• In the shorter-term, the Index has continued to evolve within a bearish “Ascending Wedge” range configuration since 24 Dec 2018.

Elements are mixed, thus prefer to turn neutral between 2700 and 2600. Only a break below 2600 revives the bearish scenario for a potential impulsive downleg towards 2450 and a retest of the Dec 2018 swing low area of 2350/40.

On the other hand, a clearance above 2700 sees a further squeeze up towards the next resistance at 2825 (the former medium-term range resistance of 16 Oct/03 Dec 2018 & the close to the pull-back resistance of the former major ascending channel support from 11 Feb 2016 low).

Nikkei 225 – Watch the 21020 key resistance

Key Levels (1 to 3 weeks)

Resistances: 21020 & 22780/23000

Supports: 20100, 18970 & 17900/700

Medium-term (1 to 3 weeks) Outlook

The Japan 225 Index (proxy for the Nikkei 225 futures) is the only major stock index in our coverage that is still below its 21020 key medium-term pivotal resistance. Given that the rest of the stock indices have broken above their respective pivotal resistances, the conviction for the bearish scenario has been reduced.

Thus, we prefer to turn neutral between 21020 and 20100 first. Only a break below 20100 reinstates the bearish scenario for a potential impulsive downleg to retest the 26 Dec 2018 swing low area of 18970 in the first step. On the flipside, a clearance above 21020 sees an extension of the rebound towards the 16 Oct/03 Dec 2018 range resistance of 22780/23000.

Hang Seng – Stuck inside a complex “triangle range”

Key Levels (1 to 3 weeks)

Resistances: 28000 & 29100

Supports: 26740, 27070 & 25000

Medium-term (1 to 3 weeks) Outlook

The Hong Kong 50 Index (proxy for Hang Seng Index futures) has broken above the 26740 pivotal medium-term resistance and price action of the Index seems to be evolving within a choppy “triangle range” configuration since 26 Oct 2018, similar configuration seen during Feb/Jun 2018. The top of the range stands at 28000 which is defined by the 50% Fibonacci retracement of the recent decline from 07 Jun 2018 high to 26 Oct 2018 low, the descending trendline resistance from the current all-high level of 33530 printed on 29 Jan 2018 and the pull-back resistance of the former major ascending trendline support from Feb 2016 low.

Prefer to turn neutral now between 28000 and 26740. Only a break below 26740 revives the bearish scenario for a slide to retest the “triangle range” support now at 25000.

ASX 200 – Mix elements 

Key Levels (1 to 3 weeks)

Resistances: 6000 & 6215

Supports: 5680, 5520 & 5415

Medium-term (1 to 3 weeks) Outlook

The Australia 200 Index (proxy for the ASX 200 futures) has also continued its upward surge and the on-going rebound from its 21 Dec 2018 swing low area has almost reached the 61.8% Fibonacci retracement of the entire decline from 17 Aug 2018 high to 21 Dec 2018 low and the medium-term swing high areas of 17 Oct/12 Nov 2018 now resistance at 5950/6000.

In addition, the daily RSI oscillator has also reached its overbought region. Mix elements now, prefer to turn neutral between 6000 and 5680. Only a break below 5680 reinstates the bearish tone for a potential impulsive downleg to retest the Dec 2018 swing low area at 5415. On the flipside, a clearance above 6000 opens up scope for an extension of the rebound towards the next resistance at 6215 (the swing high areas of 21 Sep/28 Sep 2018).

DAX – Watch the 11350 resistance

Key Levels (1 to 3 weeks)

Resistances: 11350 & 11800

Supports: 10700, 10180 & 9965

Medium-term (1 to 3 weeks) Outlook

The Germany 30 Index (proxy for the DAX futures) had shot past above the 11050 pivotal medium-term resistance on last Fri, 18 Jan on the back of an increase in optimism that U.S. and China is likely to reach a trade deal before the 01 Mar 2019 deadline.

The on-going rebound from its 26 Dec 2018 swing low of 10180 is now coming close to 11350 which is the 38.2% Fibonacci retracement of entire decline of the previous impulsive down move from 22 May 2018 high to 26 Dec 2018 low, a typical end target for a corrective rebound under the Elliot Wave/fractal analysis perspective. In addition, the weekly RSI oscillator is now testing a corresponding significant resistance at the 45 level.

Thus, prefer to adopt a neutral stance now between 11350 and 10700. Only a break below 10700 revives the bearish scenario for a potential impulsive downleg to retest the Dec 2018 swing low at 10180 in the first step. On the flipside, a clearance above 11350 opens up scope for an extension of the corrective rebound to retest the major resistance at 11800 (the neckline resistance of the major “Head & Shoulders” bearish breakdown & the descending trendline from 14 Jun 2018 high).

Charts are from City Index Advantage TraderPro & eSignal