Weekly Technical Outlook on Major Stock Indices 02 Jul to 06 July 2018

S&P 500 – Choppy movement above 2680 support

Key Levels (1 to 3 weeks)

Supports: 2680, 2610 & 2585

Resistances: 2744 & 2790

Medium-term (1 to 3 weeks) Outlook

Last week, the SP 500 Index (proxy for the S&P 500 futures) had failed to make an impulsive upleg movement as it broke below the 2740 key medium-term pivotal support. Thereafter, it tumbled towards the alternative bearish scenario target/support of 2680 (printed a low of 2691 on last Thurs, 28 Jun).

The up move from 03 Apr 2018 low of 2552 has started to turn choppy and its price action has started to evolve into an impending bearish “Ascending Wedge” range configuration (see 4 hour chart) that tends to be formed at the tail-end of a melt-up phase where a significant corrective down move may occur next.

In conjunction, sector leadership has only been concentrated into those higher beta indices/sectors such as Nasdaq 100, NYSE FANG+, Russell 2000 for more than 3 months since the recent steep fall that occurred in Jan/Feb 2018 where positive spill overs have yet to materialised into other “risk on” sensitive sectors such as Financials and Industrials.

Therefore, we prefer to turn neutral now between 2680 (close to the lower boundary of the “Ascending Wedge” & congestion area of 30 Apr/08 May/30 May 2018) and 2744. A daily close below 2680 is likely to trigger a further down move towards the next support at 2610/2585 (76.4% Fibonacci retracement of the up move from 03 Apr 2018 low to 14 Jun 2018 high, swing low area of 03 Apr 2018 & the pull-back support of the former primary/long-term ascending channel resistance from Mar 2009).

Nikkei 225 – Bearish breakdown below 22000, but a minor mean reversion rebound cannot be ruled out

Key Levels (1 to 3 weeks)

Intermediate resistance: 22000

Pivot (key resistance): 22340

Supports: 21600 & 21000/20800

Next resistance: 23020

Medium-term (1 to 3 weeks) Outlook

Recalled that we had turn neutral between 22000 and 23020 last week on the Japan 225 Index (proxy for the Nikkei 225 futures) due to the lack of positive technical elements. Click here for a recap on our previous weekly technical outlook.

Indeed, the Index had staged a bearish breakdown below 22000 in today, 02 Jul Asian session which validated at least a potential multi-week corrective decline. Key elements are as follow;

• The Index had staged a bearish breakdown from a medium-term bearish “Double Top” reversal chart configuration in place since 21 May 2018 with a potential exit target of 20800 (see 4 chart).
• The potential exit target of the “Double Top” confluences with a major support zone of 21000/20800 that is being defined by the major ascending channel support from Jun 2016 low and a Fibonacci cluster (76.4% Fibonacci retracement of the recent up move from 23 Mar 2018 low to 21 May 2018 high & 2.00 Fibonacci projection of the on-going down move from 12 Jun 2018 high to 19 Jun 2018 minor swing low projected from 21 Jun 2018 minor swing high).
• The shorter-term 4 hour Stochastic oscillator is now coming close to an extreme oversold level of 3 where suggests the current down move is overstretched and a mean reversion rebound may occur above the 21600 intermediate support.
• The key medium-term resistance stands at 22340 which is defined by the minor swing high  areas of 27/28 Jun 2018, the descending trendline from 12 Jun 2018 and the 50% Fibonacci retracement of on-going decline from 12 Jun 2018 high to today, 02 Jul Asian session low of 21698.

Therefore, as long as the potential short-term mean reversion rebound is capped below the 22340 key medium-term pivotal resistance, the Index is likely to shape another downleg to target the major support zone of 21000/20800.

However, a clearance above 22340 indicates a failure bearish breakdown for a squeeze up to retest the 23020range resistance.

Hang Seng – Eyeing the 28000 major support next

Key Levels (1 to 3 weeks)

Intermediate resistance: 29400

Pivot (key resistance): 30070

Support: 28000

Next resistance: 31800

Medium-term (1 to 3 weeks) Outlook

The Hong Kong 50 Index (proxy for Hang Seng Index futures) had staged a bearish breakdown from a 5-month range configuration in place since 10 Feb 2018 low.

The key medium-term pivotal resistance will be at 30070 (pull-back resistance of the former 5-month range support & 50% Fibonacci retracement of the on-going decline from 07 Jun 2018 high to 27 Jun 2018 low) that must cap any potential mean reversion rebound for another potential downleg to target the major support at 28000 (the swing low areas of 19 Oct/07 Dec 2017 & the primary ascending trendline in place since Feb 2016 low).

On the flipside, a clearance above 30070 negates the bearish tone for squeeze back up to retest the 31800 range resistance in place since 27 Feb 2018.

ASX 200 – 6085 remains the key medium-term support to watch

Key Levels (1 to 3 weeks)

Intermediate support: 6140

Pivot (key support): 6085

Resistances: 6270/80 & 6350/80

Next support: 5980

Medium-term (1 to 3 weeks) Outlook

No major changes on its key elements as the Australia 200 Index (proxy for the ASX 200 futures) traded sideways last week above the 6085 key medium-term pivotal support.

Therefore as long as the adjusted key medium-term pivotal support at 6085 holds (the minor swing low area of 19 Jun 2018, the lower boundary of a medium-term ascending channel from 04 Apr 2018 & close to 50% Fibonacci retracement of the on-going up move from 30 May 2018 low to 22 Jun 2018 high of 6258), the Index is likely to shape another potential upleg to target 6270/80 before the next resistance at 6350/80 (Fibonacci projection cluster & upper boundary of the medium-term ascending channel from 04 Apr 2018). 

On the other hand, failure to hold at 6085 negates the bullish tone for a deeper pull-back to retest 5980 pull-back support of the former “Symmetrical Triangle” range resistance (see 4 hour chart).

DAX – Risk of a mean reversion rebound

Key Levels (1 to 3 weeks)

Supports: 12100 & 11900/800

Resistances: 12630 & 13190

Medium-term (1 to 3 weeks) Outlook

The Germany 30 Index (proxy for the DAX futures) had continued to tumble as expected and met the first medium-term support/target of 12300/200.

Last week’s decline has managed to stall right at the primary trendline support in place since Feb 2016 low coupled with a bullish divergence signal seen in the shorter-term 4 hour Stochastic oscillator. These observations highlight the risk of a mean reversion rebound to retrace the on-going down move from 15 Jun 2018 high of 13186.

Therefore, prefer to turn neutral first between 12100 and 12630. Only a break below 12100 is likely to see a further slide towards the key major support at 11900/800 (neckline of a multi-month “Head & Shoulders” bearish reversal chart configuration in the making since Jun 2017).

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This report was kindly contributed by City Index and was first published here on July 2, 2018.

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