Weekly Technical Outlook on Major Stock Indices 13 May to 17 May 2019 Part 1

S&P 500 – Further corrective down move in progress

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Key Levels (1 to 3 weeks)

Intermediate resistance: 2900

Pivot (key resistance): 2920

Supports: 2790 & 2730

Next resistance: 2959 & 3007

Medium-term (1 to 3 weeks) Outlook

The SP 500 Index (proxy for the S&P 500 futures) has shaped the expected decline as per highlighted in our previous weekly outlook report and met the first support/target of 2875/56 (click here for a recap).

It printed a low of 2835 in yesterday, 09 May early U.S. session before it shaped a bounce of 1.2% to end the U.S. session at 2870 on the backdrop of a tense U.S/China trade relation. Trade officials from both sides have entered the final stretch of a 2-days negotiation talk in Washington to hammer out a deal before U.S. administration imposes additional tariffs on Chinese imports after 12.00 am U.S. time on Friday, 10 May. Technical elements are still negative as follow;

• The medium-term uptrend in place since 26 Dec 2018 low has been damaged as price action to the Index has shaped a bearish reversal “Ascending Wedge” configuration in shape since 08 Mar 2019 (this type of chart pattern tends to form at the end of an uptrend and likely trigger a volatile movement in the opposite direction of the prior trend). Interestingly, the rebound that has occurred after its earlier gapped down (also the bearish break of the “Ascending Wedge”) seen on Mon, 06 May after U.S. President Trump’s tariffs threat to China fired on Sun has retested and reacted off the former “Ascending Wedge” support now turns pull-back resistance at 2920.
• The 2920 resistance also confluences closely with the 61.8% Fibonacci retracement of the on-going slide from 01 May 2019 all-time high to 09 May 2019 low of 2835
• Medium-term momentum remains negative as the daily RSI oscillator remains below 50 and still has room to manoeuvre to the downside before it reaches an extreme oversold level of 25.
• The VIX futures has continue to incher this week after it tested the “complacency zone of 12.80/10.10 on 15 Apr 2019. It has room for further potential upside before it reaches the “fear zone” of 26.40/28.25 which translates to further downside potential in the S&P 500 before the bears capitulate.

Therefore, we maintain the bearish bias below a tightened key medium-term pivotal resistance at 2920 for another round of potential impulsive downleg to target the next supports at 2790 and 2730.

On the other hand, a clearance with a daily close above 2920 invalidates the bearish scenario for a continuation of the 5-month uptrend to retest its current all-time high at 2959 and even 3007 next (Fibonacci expansion).

Nikkei 225 – Bearish breakdown below 21880/900

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Key Levels (1 to 3 weeks)

Intermediate resistance: 21645

Pivot (key resistance): 21900

Supports: 20900 & 20185

Next resistances: 22490 & 22800/23050

Medium-term (1 to 3 weeks) Outlook

The Japan 225 Index (proxy for the Nikkei 225 futures) has staged the bearish breakdown below the 21880 lower limit of the neutrality zone on Tues, 07 May U.S. session as per highlighted in our previous report. Thus, a multi-week corrective down move scenario has been validated.

Technical elements remain negative and the key medium-term pivotal resistance to watch will be at 21900 for a potential down move to target the next supports at 20900 before 20185.

On the other hand, a clearance with a daily close above 21900 invalidates the bearish scenario for a squeeze up towards 22490 and 22800/23050.

Charts are from City Index Advantage TraderPro & eSignal