Article / 08 June 2016 at 1:38 GMT

Global Market Report: S&P500 at risk of pullback

Global Investment Analyst / Rivkin
Australia
  • The S&P/ASX200 near-term weakness remains a high probability
  • S&P500 at risk of short-term pullback
  • Nikkei consolidates between resistance and support
  • WTI crude oil wait for declines before turning bullish
  • Spot gold turning short-term bullish towards $1270
  • Natural gas moves to target $2.90 over coming months

By James Wood

Near-term weakness remains for ASX200

On the daily time frame, the price remains within the noted resistance zone between 5305 and 5384 marked by previous highs and lows. The confirmation of bearish momentum divergence at the ASX200 May highs continues to suggest the strong likelihood of further near-term weakness over the coming weeks. Below current levels support is found between 5160 and 5100 where we find the 50% and 61.8% Fibonacci retracement levels of the current rally.

ASX200 daily
ASX200 Daily
 
On the weekly chart, following a brief push higher the price is now marginally below the support between 5305 and 5384, marked by previous highs and lows as well the 50% Fibonacci retracement level. 

Longer term, while some near-term weakness is expected, given the confirmation of bullish momentum divergence at the February low, we believe a significant low is now in place with higher levels above 5,425 likely over the coming months.

ASX200 weekly
ASX200 Weekly
 
Our outlook remains bearish while below the May high at 5427 on a closing basis. 

S&P500 pullback possibility

On the daily time frame, while the price closed higher on Tuesday it was in the lower half of the trading range forming a bearish candle. With the price modestly above key resistance and momentum indicators at highly overbought levels, this now suggests the strong possibility of a pause or pullback for the S&P500. Below current levels initial support is located between 2007 and 1982 marked by previous highs and lows.

S&P500 daily
S&P500 Daily
 
Longer term, the price has now set a higher high confirming the trend remains up. While some near-term weakness is expected, the outlook continues to improve as the price pushes to new highs following the impulsive rally from the February lows.

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

Nikkei225 consolidating

On the daily chart, following a test of the noted resistance zone, the price has pulled back over the past week to set a higher low at 16,220 where we find the lower boundary of the rising trend channel. The formation of a higher low suggests the trend for Nikkei225 remains up and a likely retest of 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.

Initial support is located around 16,220 however a close below level would suggest a deeper decline towards 15,650 and 15,320, marked by lows over the past four months.

Nikkei225 daily
Nikkei225 Daily
 
Longer term, the price has formed a lower high potentially suggesting we may see a period of consolidation. Above current levels resistance is located between 16,890 and 16,440 marked by previous highs and lows while support is located between 15,840 and 15,320.

Nikkei225 weekly
Nikkei225 Weekly
 
Our outlook remains neutral. 

WTI crude oil outlook improves

On the daily chart, the price continues to push towards the upper boundary of the resistance between $48.39 and $50.92, marked by previous significant highs and lows. The new high for crude is yet to be confirmed by the slow stochastic as some minor bearish divergence has formed, opening up the possibility of near-term weakness.

Below current levels support is located between $44.53 and $43.20 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 and $37.29. It would take a close below $43.20 to suggest a deeper retracement towards deeper support.

WTI crude oil daily
WTI Crude Daily
 
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 over the coming months.

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

Pullback risk for natural gas

On the daily time frame, the price has now closed above the former resistance zone, now support, 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. 

While there are no clear signs recent gains for natural gas are becoming exhausted, momentum indicators have now crossed into overbought territory highlighting the growing risk of a pause or pullback from current levels.

Above current levels broad resistance is located between $2.70 and $2.80 marked by previous highs and lows.

Natural gas daily
Natural Gas Daily
 
On the weekly chart, the trend is now up following the formation of a higher low and higher high suggesting the large basing pattern is now complete. The confirmation of bullish momentum suggests a significant low is in place opening up a move towards $2.90 over the coming months.

Natural gas weekly
Natural Gas Weekly
 
Our outlook remains neutral waiting for a pullback before turning bullish once again. 

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While there are no signs gains in natural gas are becoming exhausted, indicators have crossed into overbought territory, highlighting the risk of a pullback. Photo: iStock 

XAUUSD turns short-term bullish

On the daily chart, the gold price is now pausing as it tests the 50-day moving average following a decisive move higher last Friday. The slow stochastic has now crossed up from oversold levels and while price may consolidate around current levels, it does suggest the likelihood of further gains to follow. 

Above current levels resistance is located between $1270 and $1303 marked by previous highs and lows over the past two years. 

XAUUSD daily
XAUUSD Daily
 
Longer term, the week chart shows the price bouncing higher following a test of the support zone between $1208 and $1191, marked by previous lows. While we cannot yet rule out a deeper retracement, overall the rally throughout 2016 has been strong and is likely the beginning of a larger move higher over the coming 12 to 18 months towards the $1400 region. 

As such, we view current weakness as merely corrective.

XAUUSD weekly
XAUUSD Weekly
 
We are now updating our outlook to short-term bullish towards $1270.

Source: All graphs, Bloomberg. Create your own charts with SaxoTrader; click here to learn more.  

– Edited by Gayle Bryant

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