Article / 20 July 2016 at 2:31 GMT

Global Market Report: Key indices move into overbought territory

Global Investment Analyst / Rivkin
Australia
  • Key indices - Nikkei, ASX and S&P 500 are overbought and rife for profit-taking
  • Gold rally throughout 2016 has been strong and could start a larger move higher
  • WTI remains modestly above the support zone between $44.53/b and $43.20/b

By James Woods

ASX200

On the daily time frame, the ASX/S&P 200 price remains modestly below the broad resistance zone between 5,481 and 5,600, marked by previous highs and lows throughout 2014 and 2015.

The price appears to be struggling to now close decisively higher and with momentum indicators at extremely overbought, there is the heightened risk of a pause or pullback in the near-term.

Overall recent gains look sustainable and any near-term weakness will be viewed as merely corrective.

Below current levels support is located between 5,384 and 5,305, marked by highs and lows throughout 2015 and 2016.

ASX 200 daily chart

ASX200 Daily
 
On the weekly chart, the price is moving higher following a test of noted support as it traces of what is potentially a large basing pattern.

Despite the likelihood of some near-term weakness given the confirmation of bullish momentum divergence at the February low, we believe a significant low is now in place with higher levels above 5,700 likely over the coming months.

ASX weekly chart

ASX200 Weekly






















Source: Both charts, Armbroker.com
 
With the increased risk of a pullback in the near-term we are updating our outlook to neutral, turning bullish once again on signs that corrective declines are completed.

S&P500 Futures

On the daily time frame, the strength of the recent rally in the US 500 appears to be waning with the price struggling to close decisively higher.

Momentum indicators remain at highly overbought levels suggesting the risk of a pullback or at least a pause in the near-term however the break the new all-time highs is encouraging from a longer-term perspective.

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 While there may be some retracement, gold is looking strong in the mid term. Photo: iStock

Below current levels, initial support is located between 2,110 and 2,075, marked by previous highs and critical that any pullback holds this region to be confident short-term gains are sustainable.

Further support is located between 2,007 and 1,982 marked by the June low and 200-day moving average.

US 500 daily chart

S&P500 Daily























Longer-term, the price has now pushed above noted resistance, which should now provide interim support.

Following a volatile trading range over the past 18 months, the break up suggests a resumption of the broader uptrend. All in all, pullbacks from current levels will present buying opportunities. Our short-term outlook remains neutral.

US 500 weekly chart

S&P500 Weekly
Source: Both charts, Armbroker
 
Nikkei225 Futures

On the daily time frame, since turning bullish last week the price has continued to move higher. Above current levels resistance is located between 17,190 and 17,800, marked by the 50% & 61.8% Fibonacci retracement levels of the December 2015 to February 2016 decline as well as the 200 Day Moving Average.

However, any potential upside may be limited with momentum indicators having now crossed into oversold territory, highlighting the risk of a pause or pullback from current levels.

Initial support is located around 16,220, marked by previous highs and lows as well as the 50-day moving average while further support is located between 15,650 and 15,320, marked by lows over the past six months.

Nikkei daily chart

Nikkei225 Daily






















Longer-term, the weekly chart shows the price bouncing higher following a test of the lower boundary of the declining trend channel.

Overall both the intermediate and dominant trends remain down and we now look for the formation of a higher low above 14,790 to invalidate the downtrend. Notwithstanding the chance of some near-term weakness our outlook remains bullish.

Nikkei weekly chart

Nikkei225 Weekly
Source: Both charts, Armbroker

WTI crude oil futures

On the daily time frame, the price for WTI crude remains modestly above the support zone between $44.53/barrel and US$43.20/b marked by highs and lows over the past several months as well as containing the 38.2% Fibonacci retracement level of the February to June rally.

The slow stochastic remains oversold highlighting the likelihood of a bounce towards resistance located between US$48.39/b and US$50.92/b, marked by recent highs.

Overall, the recent price action appears to be corrective, by which we mean choppy and remaining within a small declining trend channel potentially forming a bullish flag pattern.

The completion of such a pattern would suggest higher levels towards $60/b.

WTI daily chart

WTI Crude Daily























Longer-term, given the strong rally off the early 2016 lows, we now expect to see a higher low form, ahead of further gains.

Furthermore, it is encouraging from a longer-term trend perspective, that the 50 DMA is now back above the 200-day.

Our outlook remains bullish while it would take a close below $43.20 for our outlook to revert to neutral.

WTI weekly chart

WTI Crude Weekly
Source: Both charts, Armbroker

Natural gas futures

On the daily time frame, following the recent high at $2.97, the price has continued to correct lower over the past two weeks, by which we mean choppy and remaining within a small declining trend channel potentially forming a bullish flag pattern.

While recent declines have allowed momentum indicators to unwind from overbought levels, however given the recent pullback has been short in both time and length compared with the May to July rally we believe a more extensive consolidation period if required if further gains are to be sustained.

Below current levels further support is located between $2.50 and $2.40, marked by previous highs and lows as well as containing the 61.8% Fibonacci retracement level of the May to July rally.
Overall the impulsive nature of recent gains is encouraging and any signs declines are complete may provide an opportunity to turn bullish.

Natural gas daily chart

Natural Gas Daily
 
On the weekly chart, the price is now pulling back following a move higher after the completion of a large basing pattern.

This has formed what appears to be a “cup and handle” pattern, which once complete suggests further gains.

Overall we believe a significant low is in place at $2.00 and the likelihood of higher levels towards $3.50-$3.60 over the coming months.

Our outlook remains neutral turning bullish on signs recent declines are complete.

Natural gas weekly chart

Natural Gas Weekly
Source: Both charts, Armbroker

XAUUSD (spot gold)

On the daily time frame, the spot gold price continues to drift lower following the recent high at $1,375/oz within the broad resistance zone between $1,355/oz and US$1,423/oz marked by last Friday’s high, as well as previous highs and lows from 2013 and 2014.

Momentum indicators have unwound from overbought levels suggesting that recent declines, which we view as corrective, may soon be ending however we cannot yet rule out a slightly deeper retracement.

Below current levels, support is located between $1,303/oz and US$1,270/oz marked by highs and lows over the past four months as well as containing the 50% Fibonacci retracement level of the May to July rally and the 50-day moving average.

Spot gold daily chart

XAUUSD Daily
 
On the weekly chart, while some near-term weakness is expected the recent gains have been confirmed by the RSI meaning any declines are likely to be corrective.

Overall, the rally throughout 2016 has been strong and is likely the beginning of a larger move higher over the coming months towards resistance between $1,390 and $1,443 region.

Spot gold weekly chart

XAUUSD Weekly
Source: Both charts, Armbroker
 
Our outlook remains neutral, turning bullish on signs corrective declines from current levels are complete.

-- Edited by Adam Courtenay

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

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