the week ahead for major stock indices 16 may to 20 may 2016 no change maintain bearish bias 1811382

S&P 500 – vulnerable for a potential bearish breakdown below 2039/36

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Key Levels (1 to 3 weeks)

Intermediate resistance: 2054

Pivot (key resistance): 2068

Supports: 2039/36, 2005/1995 & 1968/60

Next resistance: 2083

Medium-term (1 to 3 weeks) Outlook

Maintain bearish bias. The U.S. SP 500 Index (proxy for the S&P 500 futures) has tested the 2080/83 medium-term pivotal resistance but the rebound stalled right at 2080/83 before it started to decline. Thereafter, it retested our first expected downside target at 2039/2036 in today’s early Asian session (16 May 2016). Please click on this link for a recap on our previous weekly technical outlook/strategy. Technical elements remain bearish and new elements are as follow:

• The 2039/36 remains the first significant support to watch which is which is the neckline support of the impending bearish “Head & Shoulders” and the 23.6% Fibonacci retracement of the rally seen from 11 February 2016 low to 21 April 2016 high of 2111. The exit potential of this impending bearish “Head & Shoulders” breakout stands at 1960 which also confluences with a Fibonacci cluster at 1968/60 (50% retracement from 11 February 2016 low to 21 April 2016 high of 2111+ 1.618 projection of the down move from 21 April 2016 high to the 06 May 2016 low of 2036) (see daily chart & 4 hour chats).
• After hitting a high of 2111 on 21 April 2016, the current decline seen in the S&P 500 is the least (-3.39%) among the rest of the major U.S. indices where Nasdaq 100 (-6.39%), Russell 2000 (-4.90% with a new weekly low of 1099 printed on last Friday, 13 May 2016) as well as Dow Jones Industrial (-3.61% – a new weekly low of 17512 printed on last Friday, 13 May 2016 that broke below the previous weekly low ending 06 May 2016 at 17580).
• The current outperformance seen in the S&P 500 is being propped up by the energy and materials related equities. Both the SPDR Select Energy and Materials Sector ETFs are best performing sectors since the rally that started from 10/11 February 2016 low as  they recorded gains of 31% (Energy) and 24% (Materials) respectively to their late April 2016 highs.
• Both the Energy and Materials sectors have a combined weightage close to 10% based on information as at 12 May 2016.
• The technical charts of both the Energy (XLE) and Materials (XLB) Sectors ETFs which are the “last defence line” for the S&P 500 have reacted off their respective significant medium-term resistances at 69.00 and 47.90/48.39 respectively. Technical elements are deteriorating and shows further downside potential (refer to the last two charts).
• Based on the above mentioned sector rotation analysis, it reinforces our bearish bias on the U.S. SP 500 Index and the 2039/36 support is vulnerable for a potential bearish breakdown.
• The significant medium-term resistance (pivot) for this week will be at 2068  (61.8% Fibonacci retracement from 11 May 2016 high of 2085 to today’s current low of 2039 + a steeper descending trendline from 11 May 2016 high (highlighted in purple) (see 4 hour chart).
• The significant medium-term support rests at 2005/1995 which is defined by the former swing high areas of 28 August/17 September 2015 which has been tested thrice and the 38.2% Fibonacci retracement of the whole up move from 11 February 2016 to 20 April 2016 high of 2111 (see daily & 4 hour charts).

For this week, any potential minor rebound above the 2039/36 support is likely to be capped by the 2068 medium-term pivotal resistance and thereafter another potential downleg should materialise to target the 2005/1995 support in the first step.

On the other hand, a break above the 2068 medium-term pivotal resistance may negate the bearish tone to see a further push up to retest the next resistance at 2083 (the swing high areas of 03 May/11 May 2016).

Nikkei 225 – Potential push down below 16720/820 resistance towards range bottom

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Key Levels (1 to 3 weeks)

Pivot (key resistance): 16720/820 (excess)

Supports: 16200 & 15820/615

Next resistance: 17710/900

Medium-term (1 to 3 weeks) Outlook

Maintain bearish bias for potential push down towards range bottom. Last week, the Japan 225 (proxy for the Nikkei 225 futures) has staged a push up and tested the 16720 medium-term pivotal resistance but it does not manage to have a clear break above it. Please click on this link for a recap on our previous weekly technical outlook/strategy. Technical elements remain almost unchanged.

• The intermediate support to watch will be at 16200 which is defined by the pull-back support of the former minor rectangle range bullish breakout (see 4 hour chart).
• The significant medium-term support rests at 15820/615 which is the range bottom/support as defined by the purple coloured ascending trendline from 12 February 2016 low and the 0.618 Fibonacci projection of the down move from 25 April 2016 high to 30 April 2016 low projected from last week high of 16822, a typical 5^th wave target to gauge the potential end level of the intermediate degree impulsive bearish wave structure/cycle (Elliot Wave) that is in place since 25 April 2016 high of 17770 before a mean reversion rally occurs (see daily & 4 hour charts).

Therefore, as long as the 16720/820 medium-term pivotal resistance is not surpassed, the Index is likely to see a further potential down move to target 16200 before 15820/615.

However, a clearance above the 16720/820 medium-term pivotal resistance may damage the medium-term bearish view for a squeeze back up towards the next resistance at 17710/900 (major swing high formed at end of January 2016 + 23 April 2016 swing high).

Hang Seng Index – Risk of minor rebound/consolidation first before another downleg materialises

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Key Levels (1 to 3 weeks)

Intermediate resistance: 20600

Pivot (key resistance): 21060

Supports: 19680/500 & 18540

Next resistance: 21650

Medium-term (1 to 3 weeks) Outlook

Maintain bearish bias but risk of a minor push up first. Last week, the Hong Kong 50 Index (proxy for the Hang Seng Index futures) has staged the expected decline and hit our medium-term term target zone (support) at 19680/500 (printed a low of  19579 on last Friday, 13 May 2016). Please click on this link for a recap on our previous weekly technical outlook/strategy. New technical elements as follow:

• The daily (medium-term) RSI oscillator remains bearish below its resistance and 50% level. In addition, it has not display any bullish divergence signal which indicates that medium-term downside momentum of price action remains intact (see daily chart).
• The shorter-term (4 hour) Stochastic oscillator continues to inch upwards and still has some “residual” room to manoeuvre before reaching its extreme overbought level. These observations suggest the risk of a further minor push up in price action.
• The intermediate resistance stands at 20600 which is defined by the 50% Fibonacci retracement of the recent decline from 21 April 2016 high to last week low of 19579 and the reintegrated pull-back resistance of a former long-term ascending channel’s lower boundary from 02 October 2011 low (see weekly & 4 hour charts).
• The significant medium-term resistance remains at 21060 which is neckline resistance of the Toppish configuration bearish breakout (see 4 hour chart).

Therefore, the Index may see a potential minor push up first towards 20600 with a maximum limit set at the 21060 medium-term pivotal resistance before another downside movement materialises to retest 19680/500 before targeting the next support at 18540.

On the flipside, a clearance above the 21060 medium-term pivotal resistance is likely to damage the bearish tone to see a further push up to retest the recent range top at 21650 formed in late April 2016.

FTSE China A50- Remain bearish below 9430/9700

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Key Levels (1 to 3 weeks)

Intermediate resistance: 9430

Pivot (key resistance): 9700

Supports: 9180/080 & 8630/560

Next resistances: 9840 & 10310

Medium-term (1 to 3 weeks) Outlook

Last week, the China A50 Index has traded sideways and there are no major changes in its technical elements. Right now, it is still evolving with an ascending range consolidation configuration (potential “bearish flag”) in place since 09 May 2016 low with the range resistance set at 9430.

As long as the 9700 medium-term pivotal resistance is not surpassed, the Index is likely to shape a decline to retest 9180/080 and a break below it may trigger a steeper slide to target the significant February 2016 swing low area of 8630/560.

Only a break above the 9700 medium-term pivotal resistance is likely to damage the bearish tone to see a retest on the 9840 range top of March/April 2016 before targeting the next resistance at 10310.

 DAX – Remain bearish below 10165 resistance

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Key Levels (1 to 3 weeks)

Intermediate resistance: 9970/10026

Pivot (key resistance): 10165

Supports: 9620 & 9530/430

Next resistance: 10530

Medium-term (1 to 3 weeks) Outlook

Maintain bearish bias for potential last push down. Last week, the German 30 Index (proxy for the DAX futures) has traded sideways but remained right below its intermediate resistance zone of 9970/10026. No major changes in its technical elements.

• The medium-term intermediate support to watch now rests at 9620 which is defined by a Fibonacci cluster (50% retracement of the up move from 11 February 2016 low to 21 April 2016 high of 10527 + 0.618 projection of the down move from 21 April 2016 high to 06 May 2016 low of 9733 projected from 10 May 2016 high of 10111).
• Last week push up in price action has failed to surpass the descending trendline resistance from 21 April 2016 high which is our predefined intermediate resistance at 9970/10026.

As long as the 10165 weekly medium-term pivotal resistance is not surpassed, the Index is likely to see a potential final push down to target 9620 before the 9530/430 support to see a completion of an intermediate degree bearish impulsive 5 waves structure/cycle of 1/ before a potential significant mean reversion rally materialise.

On the other hand, a clearance above the 10165 medium-term pivotal resistance is likely to invalidate the bearish trend to see a push up to retest the 21Aoril 2016 swing high of 10530.

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