Weekly Technical Outlook on Major Stock Indices 28 Jan to 01 Feb 2019

S&P 500 – “Overstretched” rebound

Key Levels (1 to 3 weeks)

Pivot (key resistance): 2700/10

Supports: 2595 (trigger), 2450, 2346/40 & 2280/70

Next resistance: 2815 (long-term pivot)

Medium-term (1 to 3 weeks) Outlook

The SP 500 Index (proxy for the S&P 500 futures) continued to push higher for the 5^th week since its 26 Dec 2018 low as the Index managed to recover last week’s earlier losses via better than expected earnings releases from key semiconductor stocks (Texas Instruments & Xilinx), the temporary lifting of the partial U.S. government shutdown for three weeks till 15 Feb 2019 as Congress agreed to continue its discussion  with the White House administration over border security and a media report from The Wall Street Journal that stated Fed officials were coming close to a decision on when to end its quantitative tightening (QT) programme as recent remarks  from key Fed officials had indicated the end of the QT programme “is getting nearer”. The Fed had begun its balance sheet roll-off programme in Oct 2017 to reduce its massive holdings of treasuries and mortgage backed securities bonds after three rounds of quantitative easing programmes. Click here for a recap on our previous outlook report.

This week will be a “big decisive moment” for risk assets as the follow major events can trigger a potential spike up in volatility across the spectrum of different financial asset classes;

• Key technology stocks’ earnings releases. (Apple – 29 Jan), (Facebook, Microsoft & Alibaba – 30 Jan), (Amazon & Samsun Electronics – 31 Jan) where Microsoft and Amazon have occupied the top two spots in the S&P 500 based on their respective market capitalization figures as at 25 Jan 2019.
• Fed monetary policy decision and press conference on 30 Jan where the focus will be on any hints or definitive timeline to end of on-going balance sheet reduction programme (quantitative tightening).
• U.S. and China key administrative officials meeting on 30 and 31 Jan for trade negotiation talks to end the on-going trade war before the 01 Mar 2019 deadline.

Key technical elements have shown that the Index is now hovering right below a key medium-term resistance at 2700/2710 which is defined by a descending trendline in place since its current 2941  all-time high printed on 21 Sep 2018 and a Fibonacci cluster (61.8% retracement from 21 Sep 2018 high to 26 Dec 2018 low & 1.236 expansion from its up move from 26 Dec 2018 low to 29 Dec 2018 high projected from 04 Jan 2019 low).

Momentum indicators have indicated that the on-going rebound has reached an overstretched condition where the daily RSI oscillator has stalled below a significant resistance at the 70 level and the price action of the Index has reached beyond the upper limit of the daily Bollinger Band on 18 Jan 2018. In addition, last week’s candlestick pattern has formed a weekly bearish reversal “Hanging Man” and Bearish Harami if taken into consideration the price action of the prior week from 14 Jan to 18 Jan 2019.

Thus, if the 2700/10 key medium-term pivotal resistance is not surpassed and a break below 2595 is likely to open up scope for a potential fresh impulsive down move to retest 2450 and 26 Dec 2018 swing low area at 2346/40.

However, a clearance above 2700/10 invalidates the bearish scenario for a further squeeze up to test the 2815 key long-term pivotal resistance.

Nikkei 225 – 21020 remains the key resistance to watch

Key Levels (1 to 3 weeks)

Pivot (key resistance): 21020

Supports: 20200 (trigger), 19320 & 18970

Next resistances: 22780 & 23050 (long-term pivot)

Medium-term (1 to 3 weeks) Outlook

The on-going rebound seen in the Japan 225 Index (proxy for the Nikkei 225 futures) is now coming close to the 21020 key medium-term pivotal resistance (0.5% away from last Fri, 25 Jan U.S. session high of 20915). In addition, the rebound has started to evolve within a minor bearish “Ascending Wedge” range configuration and the daily RSI oscillator (a momentum indicator) has shaped a breakdown below its significant support at the 55 level. These observations suggest that the upside momentum of the on-going rebound has started to wane.

Thus, if the 21020 key medium-term pivotal resistance is not surpassed and a break below 20200 is likely to open up scope for a potential fresh impulsive down move to retest 19320 and 26 Dec 2018 swing low area at 18970.

However, a clearance above 21020 invalidates the bearish scenario for an extension of the rebound towards the 16 Oct/03 Dec 2018 range resistance zone of 22780/23050.

Hang Seng – Pushed up towards 28000 key resistance

Key Levels (1 to 3 weeks)

Pivot (key resistance): 28000

Supports: 26740 (trigger), 27070 & 25200/25000

Next resistances: 29100 & 29510 (long-term pivot)

Medium-term (1 to 3 weeks) Outlook

The Hong Kong 50 Index (proxy for Hang Seng Index futures) continued to push higher and in today, 28 Jan Asian session, it printed a high of 27803 which was just 0.7% away from the 28000 key medium-term resistance (Fibonacci retracement/expansion cluster, the descending trendline resistance from the current all-high level of 33530 printed on 29 Jan 2018 & the pull-back resistance of the former major ascending trendline support from Feb 2016 low).

Thus, if the 28000 key medium-term pivotal resistance is not surpassed and a break below 26740 is likely to open up scope for a potential push down to retest 27070 and the 25200/25000 support of range configuration in place since 26 Oct 2018 low.

However, a clearance above 28000 invalidates the bearish scenario for an extension of the rebound towards 29100 and even the 29510 long-term pivotal resistance.

ASX 200 – Maintain neutrality stance

Key Levels (1 to 3 weeks)

Resistances: 6000 & 6150 (long-term pivot)

Supports: 5700, 5520 & 5415

Medium-term (1 to 3 weeks) Outlook

No change for the Australia 200 Index (proxy for the ASX 200 futures), maintain neutrality stance between 6000 and 5700. Only a break below 5700 reinstates the bearish tone for a potential impulsive down move to retest the Dec 2018 swing low area at 5415. On the flipside, a clearance above 6000 sees for an extension of the rebound towards the 6150 key long-term pivotal resistance (76.4% Fibonacci retracement of the entire decline from 17 Aug 2018 high to 23 Dec 2018 low & pull-back resistance of the former major ascending channel support from 10 Feb 2016 low).

DAX – Maintain neutrality stance

Key Levels (1 to 3 weeks)

Resistances: 11540, 11800 & 12100 (long-term pivot)

Supports: 11000, 10700 & 10180

Medium-term (1 to 3 weeks) Outlook

No change, maintain neutrality stance for the Germany 30 Index (proxy for the DAX futures) with an adjusted neutrality range between 11540 and 11000. The upper limit of 11540 is defined by the major descending trendline from 14 Jun 2018 high, swing high areas of 14 Nov/03 Dec 2018 and the upper limit of a bearish “flag” configuration in place since 26 Dec 2018 low.

Only a break below 11000 revives the bearish scenario for a potential impulsive down move to retest 10700 and the 26 Dec 2018 swing low area of 10180. On the flipside, a clearance above 11540 sees an extension of the corrective rebound to retest the major resistance at 11800 (the former neckline support of the major “Head & Shoulders” bearish breakdown).

Charts are from City Index Advantage TraderPro & eSignal