(Click to enlarge charts)
What happened yesterday/earlier
In our previous short-term daily outlook/strategy posted yesterday (please click here for a recap), we have mentioned that the Hong Kong 50 Index (proxy for the Hang Seng Index futures) still has a “residual” downside risk to shape a further pull-back below the 20080 short-term pivotal resistance towards the 19720/600 support zone.
In this morning session 09 March 2016, the Index has indeed gapped down to hit a current low of 19833 (0.6% from the 19720 support).
- The current pull-back is now coming close to the lower boundary (support) of the ascending channel also confluences with the 19720/600 support zone (gap and the former minor swing high area of 29 January 2016).
- The current low of 19833 coincides closely with the 38.2% Fibonacci retracement of the up move from 29 February 2016 low of 19041 @2pm to 04 March 2016 high of 20322 @11pm.
- The 1 hour (short-term) Stochastic oscillator has now flashed a bullish divergence signal at its oversold region which suggests that the downside momentum of the current decline from last Friday high of 20322 is waning and a potential upside reversal may occur at this juncture.
- The significant resistance to watch remains at 20380/520 which is defined by the former swing lows area of 24 August 2015 and 29 September 2015, upper boundary of the bearish descending channel in place since 26 May 2015 high and a Fibonacci cluster.
Key levels (1 to 3 days)
Pivot (key support): 19720/600
Next support: 19490 & 18840
The current pull-back in price action is coming close to the 19720/600 significant support zone and technical elements are turning positive. The current picture is now more in favour for the short-term bulls and as long as the 19720/600 short-term pivotal support holds, the Index may start to see a recovery to target the lower limit of the critical resistance zone at 20380.
On the other hand, failure to hold above the 19720/600 short-term pivotal support is likely to negate the expected recovery to see a slide to test the pull-back support of the “Inverse Head & Shoulders” bullish breakout at 19490. Only a break below 19490 may trigger a deeper decline towards the next support at 18840 (24 February 2016 swing low area).
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