Article / 18 May 2016 at 1:53 GMT

Global Market Report: Outlook bearish for benchmark S&P/ASX200

Global Investment Analyst / Rivkin
Australia
  • The S&P/ASX200 rally looks exhausted, with risk of a pullback
  • Further downside likely for S&P500 in the near term
  • WTI crude may offer opportunities following a correction
  • A corrective fall for gold keeps open up the possibility for a move above $1,304/oz
  • Near-term weakness is likely for natural gas
By James Woods

S&P/ASX200 looks overbought

On the daily time frame, the S&P/ASX200 has once again pushed marginally above within the noted resistance zone between 5,305 and 5,384, marked by previous highs. Momentum indicators continue to remain at highly overbought levels suggesting further near-term weakness is highly probable.


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 While the outlook continues to improve for WTI, we do not believe now is the time to buy, preferring to wait for a correction to provide a low risk entry opportunity. Photo: iStock


Below current levels, support is located between 5,126 and 5,071, marked by the 50% and 61.8% Fibonacci retracement levels of the current level of the current rally as well as containing the 50-day moving average.

S&P/ASX200 trendASX200 Daily























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On the weekly chart, price has initially pushed above resistance between 5,331 and 5,383, marked by previous highs and lows as well the 50% Fibonacci retracement level, only the reverse and close lower suggesting the likelihood of near-term weakness.

In the 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.

Long term S&P/ASX200 trendASX200 Weekly
























Our outlook remains bearish while below the recent high of 5,425.

S&P500 drifts lower

On the daily chart, the S&P500 continues to drift lower following the recent test of the resistance zone between 2,075 and 2,109, marked by previous highs.

Below current levels support is located between 2,007 to 1,982 region, marked by previous highs and lows as well as containing the 38.2% Fibonacci retracement level of the previous rally. We believe there is a high chance that the price will tests this zone over the coming one to two weeks.

S&P500 loses groundS&P500 Daily
























In the long term, the weekly chart followed the formation of a bearish candle last week, price continues to move lower back following a test of 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. However in order to turn bullish we would require corrective declines from current levels.

Long-term S&P500 trend
S&P500 Weekly
























We will stay bearish while price is below 2110 on a closing basis.

Japan's benchmark Nikkei 225

On the daily chart, following a test of the upper boundary of the support zone between 15,780 and 15,330, marked by previous lows over the past four months, price is now consolidating around the 50-day moving average.

Above current levels, resistance is located between 17,422 and 18,041, marked by previous highs as well as the 50% and 61.8% Fibonacci retracement levels of the December to February decline.

Nikkei 225 trend
Nikkei225 Daily

























In the 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.

Long term Nikkei 225 trend
Nikkei225 Weekly























Our outlook remains neutral. 

New highs possible for XAUUSD (spot gold)

On the daily time frame, while the near-term trend for spot gold remains down, evident by the recent lower highs and lower lows, price has remained within a small trend channel forming a bullish flag pattern.

Being a corrective pattern, this keeps open the possibility of new highs above $1,304/oz. In order to be confident of this we need to see a higher low form above $1,256.96/oz followed by a higher high.


Spot gold trendXAUUSD Daily
























In the longer term, the weekly chart shows price has broken higher however the prior consolidation was short in both time and length suggesting moves higher in the near-term may be unsustainable.

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.

Long term spot gold trend

XAUUSD Weekly
























Our outlook remains neutral. 

Pullback risk for WTI crude

On the daily chart, WTI has now pushed into the resistance zone between $48.36/barrel and $50.92/b, marked by previous highs and lows. The new high has now also been confirmed by the slow stochastic that suggests the trend is not yet exhausted. While we are yet to see momentum divergence, the price remains relatively overbought, and at risk of a pullback.

Below current levels, initial support is located around $42.50/b, marked by previous highs and lows as well as the rising trend line from February. Further support is located between $37.61 and $35.24 marked by previous highs and lows. It would take a close below $42.50 to suggest a deeper retracement towards deeper support.

WTI crude trendWTI Crude Daily

























In the longer 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 highly likely the price will move higher towards the October 2015 high of $50.92/b over the coming months.

WTI crude futuresWTI Crude Weekly
























Our outlook remains neutral. While the outlook continues to improve we do not believe now is the time to buy, preferring to wait for a correction to provide a low risk entry opportunity. 

Natural gas

On the daily time frame, the price is now beginning to move lower following a month of consolidation within the resistance zone between $2.05 and $2.15, marked by previous lows, the rising trend channel and the 50% & 61.8% Fibonacci retracement levels of the January to March decline.

Below current levels support is located between $1.903 and $1.834, marked by the 50% & 61.8% Fibonacci retracement levels of the current rally as well as the 50-day moving average, which continues to lift higher.

Natural gas futures
Natural Gas Daily























On the weekly chart, the confirmation of bullish momentum divergence at the March low suggests a significant low is in place.

While the price continues to trace out a large basing pattern, however we need to see a higher low form for the pattern to remain valid.

Natural gas long term trend

Natural Gas Weekly























With price likely to move lower over the coming weeks we are now updating our outlook to short-term bearish.


– Edited by Robert Ryan

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



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