Global Market Report: Key indices move into overbought territory
- 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
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.
ASX 200 daily chart
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
Source: Both charts, Armbroker.com
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.
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
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
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.
Nikkei daily chart
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
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.
The completion of such a pattern would suggest higher levels towards $60/b.
WTI daily chart
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
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.
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
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
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.
Spot gold daily chart
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
-- Edited by Adam Courtenay
James Woods is a global investment analyst at Sydney-based Rivkin Securities