hang seng daily outlook thurs 03 mar 2016 holding above 20230380 pull back support 1799882016

(Click to enlarge charts)

What happened yesterday/earlier

The Hong Kong 50 Index (proxy for the Hang Seng Index futures) has pull-backed sharply on an intraday basis in this morning session from a high of 20091 to a current low of 19789 (-1.5%) due to a weaker than expected China’s Caixin Services PMI reading of 51.2 for February 2016 versus market expectation of 52.6.

Key elements

• Despite this sell-off, the Index is now trading slightly above the pull-back support zone of the “Inverse Head & Shoulders” bullish breakout and yesterday’s bullish opening gap at 19720/600 (please click on link for a recap on our previous daily outlook/strategy).
• The hourly (short-term) Stochastic oscillator is inching up and still has room for further upside before reaching its extreme overbought level. This observation suggests upside momentum on price action remains intact
• The next significant short-term resistance remains at 20230/20380 which is defined by the former swing lows area of 24 August and 29 September 2015, a Fibonacci projection cluster, close to the 50% Fibonacci retracement of the steep decline from 24 December 2015 high to 11 February 2016 low and the upper boundary of the ascending channel in place since start of the countertrend rally at 11 February 2016 low.

Key levels (1 to 3 days)

Pivot (key support): 19720/600

Resistance: 20230/380

Next support: 19300/180

Conclusion

We maintain the bullish bias above the 19720/600 short-term pivotal support for a potential push up to target the 20230/380 resistance.

However, failure to hold above the 19720/600 pivotal support may negate the bullish tone for a deeper pull-back to test the lower boundary of the ascending channel from 11 February 2016 low at 19300/180

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