hang seng daily outlook tues 23 feb 2016 rally from 11 february 2016 low is getting exhausted watch

(Click to enlarge chart)

What happened yesterday

The Hong Kong 50 Index (proxy for the Hang Seng Index futures) has push up as expected and hit a high of 19581 in the overnight U.S. session.

Key elements

• Since the low of 18898 printed on 17 February 2016, the upward movement of the Index seems to be getting “exhausted” as it traced out a bearish “Ascending Wedge” configuration where the magnitude of the “higher highs” are lower than the magnitude of the “ higher  lower”.
• Based on the Elliot Wave Principal, the “Ascending Wedge” configuration tends to be formed at the tail end of a rally with is in line with our expectation that the Index’s first phase of the countertrend rally from 11 February 2016 low is coming to an end.
• The wave structure of a typical “Ascending Wedge” tends to be in a five waves motion and the current price structure has traced out 4 waves, labelled as i, ii, iii & iv. The wave iv should be supported at the 19260 level (gap + Ascending Wedge trendline support + 76.4% retracement from end of wave ii to end of wave iii). Thereafter, we are likely to see a potential final push up for wave v to complete the “Ascending Wedge” configuration with the potential end target at 19650 (Ascending Wedge trendline resistance + Fibonacci projection cluster).
• The next significant short-term resistance stands at 19720 which is defined by the swing highs area of 19 January and 29 January 2016.
• The hourly (short-term) Stochastic oscillator is now approaching its oversold region which reinforces the “last push up” scenario as per above mentioned.

Key levels (1 to 3 days)

Intermediate resistance: 19650

Pivot (key resistance): 19720

Supports: 19150 & 18900

Next resistance: 20230

Conclusion

We are getting close to an inflection level where Index is likely to end the first phase of the on-going countertrend rally. Technical elements are suggesting a potential final push up towards 19650 with a maximum limit set at the 19720 short-term pivotal resistance to complete the bearish “Ascending Wedge” configuration before the corrective pull-back occurs for a decline to target the 19150 support in the first step.

However, a clearance above the 19720 short-term pivotal resistance is likely to see an extension of the countertrend rally to target the next resistance at 20230.

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