ftsexinhua china a50 weekly outlook for 19 jan to 23 jan support broken intermediate decline within

What happened earlier

The FTSE/Xinhua China A50 Index has broken below the predefined weekly pivotal support at 10800. The main culprit for this morning’s 7% plunge is from the brokerage/securities sector where the local regulator tightened controls over margin trading for equities listed on the Chinese bourses.

Key elements  

• The long-term key resistance zone for the Index stands at 13270 (August 2009 swing high)/133880 which also confluences with the 1.00 Fibonacci projection from 20 Oct 2008 low to 03 August 2009 high (see weekly chart).
• The long-term Stochastic oscillator has exited from its overbought region has just exited from its overbought region (see weekly chart).
• The Index has broken below the ascending channel now turns pull-back resistance at around 11100 (see daily chart).
• The 100-day Moving Average is coming to support the Index at around 8500 which is also the 61.8% Fibonacci retracement from 19 March 2014 low to 05 January 2015 high (see daily chart).
• The 11100 resistance also coincides closely with the 61.8% Fibonacci retracement from 16 January 2015 high to 19 January 2015 low (see 4 hour chart).
• The next significant support stands at 9200 which also coincides with the 50% Fibonacci retracement from 19 March 2014 low to 05 January 2015 high (see daily & 4 hour charts)
• The short-term Stochastic oscillator has dipped into the oversold region which suggests a potential short-term rebound is round the corner (see 4 hour chart).

Key levels (1 to 3 weeks)

Intermediate resistance: 10280

Pivot (key resistance): 11100

Support: 9200 & 8500

Next resistance: 12000 & 12950/13270

Conclusion

Elements have turned bearish but given today’s “overstretched” decline, the Index may see a short-term rebound towards 10280.

As long as the weekly pivotal resistance at 11100 is not surpassed, the China A50 is likely to resume its intermediate downside movement towards the next support at 9200 with a possible maximum target set at 8500 before the long-term bullish trend resumes.

However, a break above 11100 is likely to revive the bulls to see the continuation of the multi-month upside movement to retest 12000 before targeting the significant resistance zone at 12950/13270.

Source:  Charts are from City Index Advantage & eSignal

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