Technical analysis: 18 June 2021
About the author:
- Author name:
- By Violeta Todorova
- Job title:
- Senior Technical Analyst
- Date posted:
- 18 June 2021, 9:00 AM
I have updated the key support level and the potential upside price targets on S&P 500, S&P/ASX 200, FTSE 100 and the Shanghai Composite Index.
The S&P 500 has been trading in a strong up trend since March 2020 posting a fresh record high of 4,257 on the 15th of June 2021. On Wednesday the 16th of June 2021, the index lost ground and headed solidly lower, after the Federal Reserve signalled that policy makers expect rates to rise earlier than previously expected by pencilling in two increases by the end of 2023.
The up trend has slowed down over the past four months; however, the price structure remains constructive at this point and as long as support of 4,056 holds the secondary up trend remains intact. The 423.60% Fibonacci retracement ratio measured from the December 2007 high to the March 2009 low shows that the first major resistance for the primary up trend is at 4,500.
While the daily RSI indicator remains in its bull market range at this juncture in time, the weekly and daily readings are overbought and we have a clear formation of a bearish divergence over the past two months on the daily, which suggests that the pace of the up trend is likely to moderate.
Overall, the index is overbought on a weekly and monthly basis, which is the first red light flushing on the chart and requires caution. Despite the overbought momentum conditions we don’t see a reversal of the up trend yet and as long as support of 4,056 is intact, we are of the view that the index may overshoot to 4,500 in the next 6 to 12 months, before a deeper decline takes place.
The XJO has been trading in a consistent up trend since March 2020, recently breaking above its February 2020 high of 7197 and reaching an all-time high of 7,406 on the 16th of June 2021.
The weekly and daily RSI indicator have reached overbought territory suggesting that the index is vulnerable to a pull back in the short-term. We see a decline to 7,150 as a fair possibility in the weeks ahead.
Despite the weekly and daily overbought momentum conditions which always warrants caution, over the long-term, we don’t see a reversal of the up trend at this point. From current price levels only a break below support of 6,905 would show deterioration in the trend which could trigger further weakness in the month(s) ahead. Overall, the momentum indicators remain in its bull market range and we are of the view that index could extend its march higher to 7,560 over the medium-term.
The FTSE has been trading in up trend channel since March 2020 and is one of the few major indexes still trading below its January 2020 high.
Despite its lagging and recent underperformance in comparison to the rest of its peers, the FTSE appears on track to reclaim its January 2020 high of 7,689.
The long-term up trend line on the daily RSI indicator still provides support showing that momentum is constructive and supports the positive outlook for the index over the medium-term. In the short-term, the index may experience a mild pull back, however we are of the view that the weakness is likely to be short-lived. Overall, our view on the market is positive and we see levels to 7,600 as achievable.
Shanghai Composite Index
The Shanghai Composite Index has been trading in a strong up trend since March 2020 which is still technically intact.
The recent secondary up swing traded above the December 2015 high of 3,684 which has been exerting resistance over the past six years. Although the breakout has not been clear and decisive, nonetheless, it shows that buying interest is building up. Over the past four months the up trend took a breather to unwind its overbought weekly and daily momentum conditions and the index has been trading sideways, fluctuating between 3,328 and 3,731. In the coming months we expect further consolidation to unfold.
The weekly momentum indicators remain constructive at this point and are in their respective bull market ranges, therefore we are of the view that a subsequent break above key resistance of 3,684 is likely. This would confirm the large inverse head and shoulders pattern that was built over the past six years and would signal that a new primary up trend is starting. The first potential long-term upside price target based on the breakout is 4,000, however this level could be exceeded in the years ahead.
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