Article / 06 July 2016 at 1:27 GMT

Global Market Report: Watch for near-term weakness in S&P/ASX200

Global Investment Analyst / Rivkin
Australia
  • Near term weakness is expected in the S&P/ASX200
  • S&P500 continues to trace out large trading range
  • There may be a pause in the rising price of spot gold
By James Woods

Temporary S&P/ASX200 weakness

On the daily time frame, while some near-term weakness is expected in the S&P/ASX200 (ASX200), we believe a significant low is in place at last week’s low at 5,050. The formation of bullish momentum divergence at this low suggests the strong probability of higher levels over the coming weeks and we now look for a higher low to form above 5,050 to confirm this view.

Above current levels, resistance is located between 5,305 and 5,384, marked by previous highs and lows as well as the 50% Fibonacci retracement level of the May 2015 to February 2016 decline.

S&P/ASX200 daily trendASX200 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.

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.

S&P/ASX200 weekly trendASX200 Weekly























Our outlook remains bullish while price remains above 5,100 on a closing basis.


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 Gold has made gains recently, but there is a growing risk of a near-term pause for the yellow metal. Photo: iStock


S&P500 futures

On the daily time frame, S&P500 price remains within the resistance zone between 2,075 and 2,109, marked by major highs over the past 18 months. While there are no signs the current gains are becoming exhausted, given the significance of this resistance zone it is likely we may see a pause or pullback from current levels.

Below current prices, support is located between 2,007 and 1,982 marked by previous highs and lows as well as containing both the 200-day moving average and 38.2% Fibonacci retracement level of the prior rally.

Daily S&P500 trendS&P500 Daily

 
Longer-term, the price remains within a well-defined trading trade between noted support and resistance.

While the price may continue higher to new all-time highs we believe an extended period of consolidation is the more likely scenario, as the price continues to trace out this range.

Weekly S&P500 trendS&P500 Weekly
























 
Our S&P500 outlook remains neutral.

Nikkei 225 futures outlook

On the daily time frame, clear bullish momentum divergence in the Nikkei 225 formed at the June low of 14,790, suggesting the decent probability of higher levels over coming weeks. In order to confirm this view we now look for a higher low to form above 14,790.

Above current levels initial resistance is located between 16,220 and 16,500 marked by last week’s highs, the lower boundary of the rising trend channel and the 50-day moving average.

Nikkei 225 trend

Nikkei225 Daily
 
In the longer term, the weekly chart shows the price beginning to bounce higher following a test of the lower boundary of the declining trend channel.

While some near-term strength is expected, there are no clear signs that recent declines are complete and overall the longer-term downtrend remains dominant.

Weekly Nikkei 225 chart
Nikkei225 Weekly






















Our outlook remains neutral turning bullish on the formation of a higher low above 14,790.

WTI crude oil futures

On the daily time frame, WTI continues to correct lower as the intermediate trend remains down with a series of lower highs and lows. Recent weakness 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/barrel and the confirmed bullish momentum divergence at last week’s low of $45.84/b also suggests the strength of declines are waning.

Below current levels support is located between $44.53/b and $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. A close below this region would suggest our bullish view is invalid and the likelihood of a deeper correction towards $39.70/b.

WTI daily trend
WTI Crude Daily























in the longer term, following the confirmation of bullish momentum divergence with the price breaking higher from a large wedge pattern, we believe a significant low is in place and highly likely the price will move higher towards $60/b over the coming months.

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

WTI weekly trend

WTI Crude Weekly
 
Our outlook remains bullish while it would take a close below $43.20/b for our outlook to revert to neutral.

Natural gas futures

On the daily time frame, the price has now closed sharply lower following a test of the resistance zone between $2.9650 and $3.1020, marked by the November 2015 to January 2016 highs and lows. With the price within the noted support zone, we may see a short-term bounce. However momentum indicators remain highly overbought, suggesting the potential for further declines over the coming weeks.

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 corrective declines from current levels may provide opportunities to turn bullish.

Natural gas daily trendNatural Gas Daily

 
On the weekly chart, while some near-term weakness is expected, the longer-term outlook continues to improve. Following the completion of a large basing pattern with confirmed bullish divergence the price has begun to move higher.

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

Natural gas weekly trend

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

XAUUSD (spot gold) tests resistance

On the daily time frame, the spot gold price has continued moving higher over the past week to now be testing the broad resistance zone between $1,355/oz and $1,423/oz marked by last Friday’s high, as well as previous highs and lows from 2013 and 2014. While the price may continue higher over the coming sessions, momentum indicators have once again crossed into oversold territory highlighting the growing risk of a pause or pullback.

Overall the impulsive nature of recent gains suggests a continual improving outlook and any corrective declines may provide opportunities to enter long positions. Below current levels support is located between $1,303 and $1,270, marked by highs and lows over the past four months.

Spot gold trend

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 should 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/oz and $1,443/oz region.

Spot gold weekly trend


XAUUSD Weekly
 
Our spot gold outlook remains neutral, turning bullish on any corrective declines from current levels.

– Edited by Robert Ryan

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