Article / 01 June 2016 at 3:15 GMT

Global Market Report: S&P/ASX200 risks pullback

Global Investment Analyst / Rivkin
Australia
  • The S&P/ASX200 rally looks exhausted, with risk of a pull-back 
  • S&P500 breaks higher to test major resistance 
  • WTI crude oil turns bullish on corrective declines 
  • A spot gold short-term bounce is likely 
  • Natural gas moves to test key resistance

By James Woods

ASX200 rally looks exhausted

On the daily chart, the slow stochastic indicator looks set to cross over at a lower level than in May and a weak close today is likely to confirm bearish momentum divergence, suggesting near-term weakness. Initial support is located around 5,305, marked by recent lows, but a close below this level would open up a deeper retracement towards support between 5,160 and 5,100, where we find the 50% and 61.8% Fibonacci retracement levels of the current rally.

ASX200 daily chart

ASX200 Daily
 
On the weekly chart, price is now above the former resistance zone, now support between 5,305 and 5,384, marked by previous highs and lows as well the 50% Fibonacci retracement level. Longer term,  given the confirmation of bullish momentum divergence at the February low, we believe a significant low is now in place with higher levels above 5,350 likely over the coming weeks.

ASX200 weekly chart
ASX200 Weekly
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While our outlook remains neutral, the clear risk is skewed to the downside.

crude
 While some near-term weakness is expected for WTI crude, the outlook continues to improve. Photo: iStock

S&P500 breaks higher

On the daily time frame, price remains within the resistance zone between 2,075 and 2,109, marked by prior highs. While there are no signs yet that the current rally is exhausted, momentum indicators are now crossing into overbought territory and with price at key resistance there is the growing risk of pause or pull-back from current levels.

Overall price breaking higher following the formation of a bullish flag pattern suggests the high probability of new highs above 2,105 over the coming weeks.

Daily S&P500 chart
S&P500 Daily
 
Longer-term, price remains within the resistance zone between 2,075 and 2,110, marked by the late 2015 highs. The impulsive rally from the February lows is an early indication of an improving outlook, and price has now set a higher low at 2,022 and a new high above 2,105.25 would confirm the trend is up.

Daily S&P500 chart
S&P500 Weekly
 
With price at key resistance we do not believe now is the time to buy, preferring to wait for a pull-back to offer a low risk entry opportunity. Our outlook remains neutral.

Nikkei 225 to test resistance

On the daily chart, price is now moving higher to test the resistance zone between 17,190 and 17,794 marked by the 50% and 61.8% Fibonacci retracement levels of the December 2015 to February 2016 decline, as well as containing the 200-day moving average and previous highs and lows over the past 12 months.

While there are no signs current gains are becoming exhausted, given the significance of this resistance zone we may see a pause or pull-back from current levels. 
Below current levels, initial support is located around 16,500, marked by lows over the past month as well as the 50-day moving average.

Daily Nikkei chart
Nikkei225 Daily
 
Longer term, price has also set a higher low confirming the trend remains up. Price remains within the resistance zone between 16,890 and 16,440 marked by previous highs and lows and a close above this level would suggest higher levels towards 18,500 over the coming weeks where we find the upper boundary of the declining trend channel.

Weekly Nikkei chart
Nikkei225 Weekly
 
Our outlook remains neutral.


On the daily time frame, the price is within the resistance zone between $48.39/barrel and $50.92/b, marked by previous significant highs and lows. The slow stochastic is now beginning to cross over at a modestly lower level than in May, suggesting the recent rally is becoming exhausted and the likelihood of near-term weakness.

Below current levels support is located between $44.53/b and $43.20/b, marked by recent highs and lows, the 50-day moving average as well as the rising trend line from February. Further support is located between $39.70/b and $37.29/b. It would take a close below $43.20/b to suggest a deeper retracement towards deeper support.

WTI crude daily chart
WTI Crude Daily
 
Long term, while some near-term weakness is expected the outlook continues to improve with the confirmation of bullish momentum divergence, suggesting a significant low is in place and it is highly likely the price will move higher towards the October 2015 high of $50.92/b over the coming months.

WTI crude daily chart
WTI Crude Weekly
 
Our outlook remains neutral turning bullish on any corrective declines from current levels.

XAUUSD looking for a bounce

On the daily chart, while price has briefly dipped below noted support the slow stochastic is now crossing up from an oversold level, suggesting the likelihood of a bounce from current levels.

Above current levels initial resistance is located at the 50-day moving average at $1,245/oz followed by the zone between $1,270/oz and $1,303/oz, marked by previous highs over the past four months.

XAUUSD daily chart
XAUUSD Daily
 
Longer term, the weekly chart shows price continuing to move lower following the recent high at $1,303/oz. The new high was confirmed by the slow stochastic, suggesting that the recent rally may not yet have put in a significant high although some near-term weakness is expected.

Above current levels resistance is located between $1,392/oz to $1,433/oz marked by previous highs while support is located between $1,208/oz and $1,191/oz, marked by recent highs and lows.

XAUUSD weekly chart
XAUUSD Weekly
 
Our outlook remains neutral.

Natural gas on the move

On the daily time frame, price has quickly moved higher following a test of the support zone between $2.20 and $2.14 marked by the 50% and 61.8% Fibonacci retracement level of the March to April rally.

The slow stochastic has now also crossed higher suggesting near-term strength and the likely test of the noted resistance zone between $2.33 and $2.42, marked by the 50% and 61.8% Fibonacci retracement levels of the January to March decline, as well as previous highs and lows.

Natural gas daily chart
Natural Gas Daily
 
On the weekly chart, the confirmation of bullish momentum divergence at the March low suggests a significant low is in place. The large basing pattern now looks complete with the formation of a higher low, however confirmation will come on a new high above $2.45 confirming a change in the longer-term trend to up.

Natural gas weekly chart
Natural Gas Weekly
 
We are now updating our outlook to neutral.


– Edited by Susan McDonald

James Woods is a global investment analyst at Sydney-based Rivkin Securities
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