hang seng daily outlook thurs 25 feb 2016 potential relief rally in progress 1798602016

(Click to enlarge chart)

What happened yesterday

The Hong Kong 50 Index (proxy for the Hang Seng Index futures) has staged the expected bearish breakout and plunged towards our predefined short-term downside targets at 19150 follow by 18900 (printed a low of 18825 in the U.S. session).

Please click on this link for a recap on our previous daily outlook/strategy.

Key elements

• Since the high of 19581 seen on Monday, 22 February 2016, the Index has declined in a clear 5 waves down movement to hit a low of 18825 seen yesterday. Interestingly, the 18825 level confluences nicely with a Fibonacci cluster (the standard, 5^th wave target of 0.618 projected from the 19581 high + 50% retracement of the recent rally from 11 February 2016 low to the 22 February 2016 high of 19581).
• Taking into account of the Elliot Wave principal and the Fibonacci relationships of the recent price actions, the Index is likely to see a short-term relief rally (in a three waves movement) to retrace yesterday’ decline. The typical retracement of 61.8% from 19581 high to yesterday low of 18825 stands at 19290 which also coincides closely with the minor swing low of 19315 seen on 23 February 2016 @ 11am.
• The hourly (short-term) Stochastic oscillator has started to reverse up from its oversold region and still has room for further upside before reaching its extreme overbought level. This observation suggests that yesterday’s decline in terms of momentum is being overstretched and the Index is likely to see a rebound at this juncture.

Key levels (1 to 3 days)

Pivot (key support): 18900/18800

Resistance: 19290/315

Next support: 18680/540

Conclusion

Elliot Wave principle coupled with other technical elements are suggesting a potential “relief rebound” towards the 19290/315 resistance before another downleg materialises.  

However a break below the 18900/18800 short-term pivotal support is likely to open up scope for a further decline to target the next support zone of 18680/540 (medium-term downside target).

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