Shanghai Stock Exchange Composite Index (SHCOMP) outperforms S&P and Hang Seng Indexes to test the key resistance

The top panel is the relative strength chart of SHCOMP index v.s. SPX index (green line) and SHCOMP index v.s. HSI (Hang Seng index) (white line). The 50 week moving average of SHCOMP/SPX (pink line) has been capping the decline since the beginning of 2010. The latest push from SHCOMP is probing the pink line again. It needs to decisively break above the key moving average ceiling to suggest basing and offer scope for long-term trend change and further outperformance of SHCOMP index relative to SPX.

The lower panel is the SHCOMP index price chart. The 200 week moving average (blue line) has been capping the decline since April 2010. If the index continues this year’s rally to break above the 2350 area (where 200 week MA is), that would confirm an 18-month base and suggest sustained strength ahead towards the triangle breakout target at 2620.

Trading bias:

Buy on dips

Shanghai Stock Exchange Composite Index (SHCOMP) Relative Strength and Price Weekly Chart

SHCOMP Index Weekly Chart for Triangle Breakout Target

S&P 500 Index may be forming a swing high near the 50 day moving average area ahead of renewed weakness towards 1904.78

The rebound off last Thursday’s 1904.78 low seems to be corrective. The index reached 1964.04 Friday (Aug 15^th) and tested 20 day moving average (purple line) and 50 day moving average (aqua line) before reversing lower. With the indicator still weak, scope remains for the index to form a swing high under the 1964.04/1965.14 resistance zone ahead of extending lower to retest the 1904.78 low and 1902.87/1902.17 support area near the rising wedge support (thick purple trendline).

On the upside, a decisive break through the 1964.04/1965.14 resistance zone would signal basing and resumption of the broad uptrend towards the 1991.39 record high for a retest.

Trading bias:

Sell Short under 1964.04 area

Stop above 1980-1992

Target around 1904-1902 then 1881

S&P 500 Index daily chart

S&P 500 Index Trading Outlook for Next Week

In summary:

·       Last Friday’s strong reversal formed a bullish reversal day, signaling potential for further ranging action next week;

·       Our bias remains bearish as far as the moving averages caps the bounce; as detailed above, 200 day moving average would be the next target.

·       Bulls need to close back above the 3 moving averages to show the correction is over.

Detailed analysis is as follows:

S&P corrected lower from the 1991.39 record peak for 11 days to last Thursday’s 1904.78 low (Aug 11), right into the initial support cluster including the 1902.17 prior high and 50% retracement of the 1814.36/1991.39 rise, before consolidating.

The short-term 10 day moving average (pink) has crossed below the 20 and 50 day moving averages, turning the chart view negative. The MACD and RSI are both in the negative territory, pointing lower.

Chart 1

S&P daily chart as of August 8, 2014

  
Whether last Thursday’s 1904.78 low is the corrective low, and where the market could trade next week, let’s take a look at how the past corrections ended. 

	Comparison of Past Corrections
	Time span	# of trading days	Total points from high to low	% change
2010
	Jan 15 to Feb 5	14	105	-9.12%
	Apr 26 to May 25	22	178	-14.61%
2011
	Feb 18 to Mar 16	18	92	-6.85%
	May 2 to Jun 16	33	112	-8.17%
	Jul 7 to Aug 9	24	254	-18.68%
	Aug 31 to Oct 4	24	155	-12.62%
	Oct 27 to Nov 25	21	134	-10.38%
2012
	Apr 2 to Jun 4	44	153	-10.75%
	Sep 14 Nov 16	44	132	-8.95%
2013
	May 22 to Jun 24	23	127	-7.53%
	Aug 2 to Aug 28	19	83	-4.86%
	Sept 19 to Oct 9	15	82	-4.74%
2014
	Jan 15 to Feb 5	15	114	-6.15%
	Jul 24 to Aug 7	11	88	-4.43%
	Average	23	129	-9.13%

Chart 2

S&P daily chart to show the three corrections in 2013

As shown in the Comparison table above, the average correction drop was 129 points since 2010, lasted 23 trading days on average and ended below the 50 day moving average. If S&P were to drop 129 points, that would take the market down to 1862, where the 200 day moving average (blue line), the 50% retracement of 1731.92/1991.39 rise and 76.4% of the 1814.36/1991.39 rise (as marked on the chart) are located.

S&P 500 Index weakens further to approach 50% retracement and rising wedge support area

S&P 500 Index

• The Index tested the long-term bull channel (from March 2009 low)  resistance before consolidating (monthly chart) while the monthly indicators remain in the overbought territory;
• The current pullback threatens the rising wedge support (from June 2013 low) near the 1900 area (weekly chart); Weekly bearish MACD cross points lower;
• The daily chart shows that the rising wedge breakdown in July and the break below the 50 day moving average have accelerated the correction towards the 1902.17/1902.87 (50% retracement of 1814.36/1991.39 rise) support zone. Below lies the rising wedge support (purple line on the daily chart) and the 61.8% retracement at 1881.99.
• On the upside, reclaiming 1942.92 is needed to stabilize. 

Daily chart

Weekly chart

Monthly chart

Dow Jones Industrial Average (DJIA) tests the 200 day moving average

Dow Jones Industrial Average

• The Index reached the 17152 peak in July, shy of the long-term rising wedge (from October 2011 low) resistance before correcting lower (monthly chart) while the monthly MACD crossed below the signal line and the monthly RSI showed lower highs, suggesting slowing momentum;
• The current pullback threatens the rising 50 week MA on the weekly chart while both the weekly MACD and RSI have turned bearish, pointing lower;
• The daily chart shows that the correction has accelerated to test the 200 day moving average. With the daily RSI oversold, there is scope for the Index to consolidate.
• While the 16596 lower high caps, the Index may have room to go lower towards supports including 16015, then 15935 (50% retracement of 14719/17152 rise). Below lies 15648 (61.8% retracement).
• On the upside, reclaiming 16596 is needed to stabilize.

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 Daily chart

Weekly chart

Monthly chart

7 USD Pairs Trading Bias Table -- August 6, 2014 (Wednesday)

Trading Bias:

	USDCHF	USDCAD
Short term	Buy on dips	Buy on dips
Buy zone	.9050-.9040	1.0880-1.0890
Stops below	0.9015	1.0850
Target near	.9130-.9150	1.0990-1.1100

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USDJPY EURUSD GBPUSD Short term Sell on bounces Sell on bounces Sell on bounces Sell zone  102.30-102.40   1.3410-1.3420   1.6860-1.6870  Stops above  102.55-102.65                   1.3445                     1.6900 Target near  101.60-101.50   1.3330-1.3310   1.6820-1.6810  ===========================================     AUDUSD NZDUSD Short term Sell on bounces Sell on bounces Sell zone  0.9385-0.9395   .8495-.8505  Stops above  0.9425   0.8532  Target near  .9310-.9300   .8420-.8410

7 USD Pairs Support and Resistance Table and ATR -- August 6. 2014 (Wednesday)

Key levels
	USDJPY	USDCHF	USDCAD	EURUSD	GBPUSD	AUDUSD	NZDUSD
Resistance 3	102.65	0.9116	1.0987	1.3445	1.6928	0.9418	0.8537
Resistance 2	102.44	0.9105	1.0960	1.3435	1.6900	0.9390	0.8510
Resistance 1	102.31	0.9093	1.0949	1.3426	1.6887	0.9375	0.8487
Support 1	101.78	0.9063	1.0903	1.3360	1.6821	0.9333	0.8454
Support 2	101.70	0.9041	1.0884	1.3354	1.6813	0.9291	0.8422
Support 3	101.60	0.9017	1.0877	1.3333	1.6800	0.9275	0.8400
Daily ATR (14)	0.44	0.0036	0.0053	0.0045	0.0061	0.0057	0.0060

7 USD Pairs Trend Table - August 6, 2014 (Wednesday)

Trend
	USDJPY	USDCHF	USDCAD	EURUSD	GBPUSD	AUDUSD	NZDUSD
6-month	Flat	Flat	Flat	Down	Flat	Down	Down
3-month	Flat	Up	Up	Down	Down	Down	Down
1-month	Down	Up	Up	Down	Down	Down	Down