hang seng daily outlook wed 03 feb 2016 watch the 19000150 gap resistance for another potential down

(Click to enlarge charts)

What happened earlier

The Hong Kong 50 Index (proxy for the Hang Seng Index) has gapped down and even broke below the 19000 medium-term pivotal support in line with weakness seen in the U.S. indices and WTI oil.

The final phase of the mean reversion rally for the Index has been invalidated. Please click on this link for a recap on our previous daily outlook/strategy.

Key elements

• The Index has gapped down in today’s opening session with a resistance window at 19000/150.
• The former trendline support from 21 January 2016 low is now a pull-back resistance (in dotted red) at 19300.
• The hourly (short-term) Stochastic oscillator has dipped into its oversold region and flashed a bullish divergence signal. These observations suggest a potential “relief rebound” at this juncture for the Index.
• The next significant short-term support rests at 18540 which is the swing low of 21 January 2016.

Key levels (1 to 3 days)

Intermediate resistance: 19000/150

Pivot (key resistance): 19300

Support: 18540

Next resistances: 20230/380

Conclusion

Technical elements have turned bearish for the Index and the mean reversion/ “snap-back” rally has ended through the break of the medium-term pivotal support at 19300. Any potential relief rebound is likely to be capped by the intermediate gap resistance of 19000/150 for another downside movement to target the 21 January 2016 swing low at 18540 in the first step.

On the flipside, only a break above the 19300 short-term pivotal resistance is likely to revive the bulls for a potential rally towards the next resistance at 20230/380.

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