hang seng daily outlook 04 may 2016 potential short term rebound above 20300 support 1809712016

(Click to enlarge charts)

What happened earlier/yesterday

The Hong Kong 50 Index (proxy for the Hang Seng Index futures) has tumbled as expected in line with the rest of major stock indices aided by a weak Caixin China Manufacturing PMI by Markit with a latest reading of 49.4 for April that came in below expectation of 49.9. Manufacturing growth as in China per measured by the Caixin China Manufacturing PMI has been contracting and it is the 14^th consecutive month of reading below 50 since March 2015.

The Hong Kong 50 Index has already declined to our expected first downside target (support) zone of 20600/400 as per highlighted in our latest weekly technical outlook/strategy published earlier (click here for a recap).

Key elements

• The Index is now coming close to the pull-back support of the former descending trendline bullish breakout (in dotted pink) at 20400/300.
• The 20400/300 pull-back support also confluences closely with the potential exit target of the Minor “Toppish” configuration bearish breakout (shaded in pink boxes) and the 2.00 Fibonacci projection of the distance of the up move from 21 April 2016 high to 26 April 2016 low projected from 28 April 2016 high of 21649 (see 1 hour chart).
• The 4 hour Stochastic oscillator has already reached an extreme oversold level coupled with an impending bullish divergence signal seen in the shorter-term (1 hour) Stochastic oscillator. These observations suggest that the downside momentum of the current down move is being overstretched and price action of the Index may see a short-term mean reversion (snap-back rally) at this juncture.
• The significant short-term resistance stands at 21000/115 which is defined by the neckline resistance of the Minor “Toppish” configuration bearish breakout and the 50%/61.8% of the recent decline from 28 April 2016 high to today session current low.

Key levels (1 to 3 days)

Pivot (key support): 20300

Resistance: 21000/115

Next support: 19850

Conclusion

Short-term technical elements are now advocating for a potential mean reversion (snap-back rally) but bear in mind that there is not enough elements at this juncture to indicate that the medium-term bearish trend that started from 21 April 2016 is over.

As long as the daily short-term pivotal support at 20300 holds, the Index is likely to see a short-term rebound towards the 21000/115 resistance.

However, a break below the 20300 short-term pivotal support is likely to invalidate the expected short-term snap-back rally for a continuation of the downside movement to target the next support at 19850 in the first step.

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