hang seng daily outlook thurs 17 mar 2016 challenging the 20520 risk level watch the first support a

(Click to enlarge charts)

What happened yesterday/earlier

The Hong Kong 50 Index (proxy for the Hang Seng Index futures) has traded sideways yesterday before it staged a bullish gapped up in today’s morning session, 17 March 2016 due to a more dovish U.S. Federal Reserve (Fed) as the median updated interest rate hike projections has been reduced to only 2 rate hikes for this year versus an expectation of 4 hikes set in the December 2015 meeting.

The Fed “dot plot” of interest rate projections will be updated every quarter and the next projection will be released in the 14/15 June 2016 meeting. In yesterday’s concluded meeting, market participants are expecting a reduction in the projected interest rate hike to 3 rather than 2 for 2016 and the more dovish tone is due to weaker global growth and heightened risks from financial market turmoil in early February.

Key elements

• Despite the gapped up seen in today’s morning session, the Index does not have a clear break above the upper limit of the risk zone at 20520. Please click on this link for a recap on our previous daily short-term outlook/strategy.
• The daily (medium-term) RSI oscillator is still below the significant resistance that capped previous advances in price action (highlighted in pink ovals).
• The hourly (short-term) Stochastic oscillator has reached its overbought region which suggests limited upside potential at this juncture as short-term upside momentum is being “overstretched”.
• The first short-term support now rests at 20190 which is the minor swing low that was formed yesterday that has tested the former minor swing highs of 10 Mar 2016@9am and @9pm.

Key levels (1 to 3 days)

Pivot (key resistance): 20520/20636

Support: 20190 & 19960/800

Next resistance: 21000 (weekly pivot)

Conclusion

The Index is now challenging the 20520 short-term pivotal resistance but current technical elements are not supporting invalidation on our initial bearish short-term view. The Index now needs to see a break below the first support at 20190 to give an impetus for a potential deeper slide to target the 11990/800 support (the lower boundary of the ascending channel from 11 February 2016 low and the minor swing lows area of 03 March and 11 March 2016).

However, an hourly close above the 20636 level will invalidate the bearish view to see a potential “residual” squeeze up towards the “excess level” of 21000 (weekly pivotal resistance).

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